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    Scott, Paul --- "Price Fixing and the Doctrine of Ancillary Restraints" [1999] CanterLawRw 9; (1999) 7 Canterbury Law Review 403
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<ul>
<li><a href="9.html#Heading1">PRICE FIXING AND THE DOCTRINE OF ANCILLARY RESTRAINTS
</a></li>

<li><a href="9.html#Heading4">I. Introduction
</a></li>
<li><a href="9.html#Heading16">II. Purpose and Effect
</a></li>
<ul>
<li><a href="9.html#Heading26">III. WHY COURTS CONDEMN PRICE FIXING
</a></li>
</ul>
<li><a href="9.html#Heading85">IV. UNITED STATES PRICE FIXING LAW72
</a></li>
<ul>
<li><a href="9.html#Heading86">Early Cases
</a></li>
<li><a href="9.html#Heading105">The Doctrine of Ancilliary Restraints
</a></li>
<li><a href="9.html#Heading134">The Rule of Reason
</a></li>
<li><a href="9.html#Heading160">The Per Se Rule
</a></li>
<ul>
<li><a href="9.html#Heading176">Modern Developments
</a></li>
</ul>
</ul>
<li><a href="9.html#Heading255">V. Does the Ancillary Restraints Doctrine Apply to Section 30?
</a></li>
<li><a href="9.html#Heading277">VI. Criticisms of The Ancillary Restraints Doctrine
</a></li>
<li><a href="9.html#Heading290">VII. Analysis of Radio 2UE.
</a></li>
<li><a href="9.html#Heading318">VIII. Conclusion
</a></li>
</ul>

<hr>

<h1>
<a name="Heading1"></a><b>PRICE FIXING AND THE DOCTRINE OF ANCILLARY
RESTRAINTS</b></h1>
<h2>
<a name="Heading2"></a><b><i>Paul G Scott<a name="FootnoteB1" href="#Footnote1">[1]</i></b></h2>
<h1>
<a name="Heading3"></a><a name="Heading4"></a><b>I. Introduction</b></h1>
<p>One of competition law's primary concerns is with agreements between
competitors. The reasons for concern are that such agreements
increase the risk
of anticompetitive action, expand market power, create an anticompetitive
restraint not otherwise possible and
surrender important decision making
autonomy on matters of competitive significance.</p>
<p>Section 27 of the Commerce Act deals with such agreements. It forbids them if
they have the purpose or effect or likely effect of
substantially lessening
competition.<a name="FootnoteB2" href="#Footnote2">[2]</a>  Robert Bork has identified the two ways in which an
agreement can substantially lessen competition:</p>
<blockquote>
a)	agreements by which consenting parties remove some or all competition
existing or likely to exist between themselves;<br>
b)	practices by which two or more parties injure competitors and thereby injure
the competitive process itself.<a name="FootnoteB3" href="#Footnote3">[3]</a> </blockquote><p>Price fixing is a
practice which falls into the first category. The general view of price fixing
is that two or more parties agree
to restrict competition between themselves by
setting fixed or minimum prices below which they will not sell. Such an
arrangement
is termed a cartel.</p>
<p>World wide competition law treats price fixing harshly. In New Zealand
section 30 of the Commerce Act deems agreements which have
the purpose or effect
or likely effect of fixing controlling or maintaining prices to substantially
lessen competition.<a name="FootnoteB4" href="#Footnote4">[4]</a>  Likewise, under section 1 of the Sherman Act
1890, United States courts have held price fixing to be a per se breach of the
law.<a name="FootnoteB5" href="#Footnote5">[5]</a>  However, a problem remains. Not every agreement which literally
fixes prices has a deleterious effect on competition. On the contrary,
a price
restraint may have an extremely procompetitive effect. Such an effect usually
arises in the context of a joint venture whereby
competitors integrate their
economic activities, usually by contract to achieve economies of
scale.<a name="FootnoteB6" href="#Footnote6">[6]</a>  This enables them to produce more output more cheaply. As
such it increases both allocative and productive efficiency. Another example
is
price restraints contained in the rules establishing an organised market. An
organised market can contribute to efficiency as
it provides more information
about the market to buyers and sellers than they could discover by themselves.
Price restraints may
be necessary to establish such a market.<a name="FootnoteB7" href="#Footnote7">[7]</a> </p>
<p>A mature competition law must be able to distinguish between a cartel which
simply fixes prices and thus harms competition and a price
restraint which is a
necessary part of a valid joint venture or the formation of an organised market
and thus benefits competition.</p>
<p>United States courts have called such a distinction
characterisation.<a name="FootnoteB8" href="#Footnote8">[8]</a>  If a price restraint is merely a cartel then
courts characterise it as price fixing and declare it per se illegal. If on the
other
hand, it is a necessary part of a procompetitive joint venture or the
like, United States courts will not characterise it as price
fixing. Rather they
will examine its purpose and pro and anticompetitive effects before deciding on
its legality. United States courts
call the second examination, assessment under
the rule of reason.</p>
<p>This article argues that the best method of dealing with the characterisation
problem is Judge William Howard Taft's doctrine of ancillary
restraints which he
enunciated in <i>United States v Addyston Pipe &amp; Steel Co? </i>Under the
doctrine a court examines the purpose behind an agreement which contains an
allegedly anticompetitive restraint. If the
only purpose of the agreement is to
eliminate competition then it is a naked restraint and worthy of condemnation.
If the agreement
has a lawful business purpose then any restraint in it is
ancillary to that lawful business purpose. A court then examines the restraint
to see whether it is wider than necessary to achieve that lawful business
purpose. If it is a court will condemn the agreement. If
not a court will bless
it. The doctrine applies to all types of allegedly anticompetitive agreements.
However, this article only
considers price fixing agreements.</p>
<p>Part I of this article examines why the New Zealand Parliament has used
purpose, effect and likely effect to assess the legality of
an agreement between
competitors. Part II discusses why section 30 of the Commerce Act deems price
fixing to substantially lessen
competition and United States courts have treated
price fixing as per se illegal. One can find the answers in United States case
law. Accordingly Part III examines the United States case law and sets out the
history of both the per se rule and rule of reason.
It argues that United States
law began with the doctrine of ancillary restraints, took a detour and has now
rediscovered the doctrine.
Part IV argues that the doctrine is applicable under
the Commerce Act. It does so on the basis of a purposive and structural
interpretation
of the Act. Part V</p>
<p>responds to some criticisms of the ancillary restraints doctrine. Part VI
examines the Australian price fixing case of <i>Radio 2UE Sydney Pty Ltd v
Stereo FM Pty Ltd<a name="FootnoteB10" href="#Footnote10">[10]</a>  </i>using the doctrine. It responds to critics of
Lockhart J's decision at first instance and argues his Honour's comments are
explicable
and uncontroversial using the doctrine. Part VII offers some
conclusions.</p>
<h1>
<a name="Heading16"></a><b>II. Purpose and Effect</b></h1>
<p>New Zealand courts examine the purpose and effect of an agreement when
assessing its legality under section 27. One must ask why?
Section 27 is based
upon section 45 of the Australian Trade Practices Act which also uses purpose
and effect to determine legality.<a name="FootnoteB11" href="#Footnote11">[11]</a>  As will be shown one can trace
the use of purpose and effect back to the famous United States case of
<i>Standard Oil Co of New Jersey v United States.<a name="FootnoteB12" href="#Footnote12">[12]</a>  </i>The New
Zealand (and Australian) Legislature adopted this test. This by itself does not
justify using purpose and effect. Mere fidelity
to a distinguished lineage does
not justify the adoption of a legal rule. However, good reasons exist for using
purpose and effect.</p>
<p>Turning to purpose, when an agreement has a substantial purpose of
substantially lessening competition courts will condemn it under
section 27.
courts condemn on purpose alone as the participants to the agreement best know
what they can achieve. They are intimate
with the market concerned. They know
the market conditions. Presumably they would not have engaged in an
anticompetitive scheme had
they not believed they had a high probability of
succeeding.<a name="FootnoteB13" href="#Footnote13">[13]</a>  If they believe that they can substantially lessen
competition by an agreement courts should accept that assessment. As Professor
Lawrence Sullivan notes purpose serves as a surrogate for effect.<a name="FootnoteB14" href="#Footnote14">[14]</a> 
If parties have an anticompetitive purpose they must believe their agreement
will have an anticompetitive effect. In some cases
despite an anticompetitive
purpose an agreement will have no anticompetitive effect. However, liability
should still arise. Such
a party who argues for no liability is in effect saying
we tried to behave anticompetitively but due to circumstances beyond our
control
we failed.<a name="FootnoteB15" href="#Footnote15">[15]</a>  Just because they were wrong is no reason to condone
their behaviour. Such a party is equally as blameworthy as a party who had
the
same purpose and who produced an anticompetitive effect.</p>
<p>If no anticompetitive purpose is evident courts turn to examine the likely
effect or effect of an agreement under section 27. If the
likely effect or
effect of an agreement is to substantially lessen competition courts will
condemn it under section 27 irrespective
of the purpose. This is
unexceptionable. As Sullivan notes:</p>
<blockquote>
It is, in the end, effects - impacts upon the competitive process - which are of
social consequence.<a name="FootnoteB16" href="#Footnote16">[16]</a> </blockquote><p>If an agreement has the effect
of substantially lessening competition then society should not put up with it.
There is no benefit
in letting it endure, nor is there any harm in forbidding
it.<a name="FootnoteB17" href="#Footnote17">[17]</a>  The reason for using likely effect in determining liability is
the same as using purpose. If an agreement had or has the likely
effect of
substantially lessening competition there is no benefit in letting it endure.
The fact that it did not mature into an actual
effect is irrelevant. By the time
of trial market circumstances may have changed. The conduct may have been caught
and examined before
it had the chance to ripen into full blown anticompetitive
effect.</p>
<p>The New Zealand High Court, following United States authority, has analysed
agreements under section 27 by considering whether there
is a less restrictive
alternative.<a name="FootnoteB18" href="#Footnote18">[18]</a>  If an agreement is designed to achieve a
procompetitive outcome a court will consider whether it was possible to achieve
that outcome
by a less restrictive agreement. If it was, then a court will
condemn the original agreement. Although controversial<a name="FootnoteB19" href="#Footnote19">[19]</a>  this method
of analysis is merely an element of considering an agreement's purpose and
effect.<a name="FootnoteB20" href="#Footnote20">[20]</a>  As for purpose, if one can achieve a procompetitive outcome
by a less restrictive agreement, that casts doubts on the claimed procompetitive
purpose. If one can do this, why didn't the parties structure their agreement in
such a way in the first place? As for effect, if
one can produce the same
outcome in a less restrictive way (without anticompetitive effect) nothing is
lost and something is gained
by forbidding the original agreement.</p>
<p>As part of assessing an agreement's effect a court weighs up the
procompetitive and anticompetitive effects.<a name="FootnoteB21" href="#Footnote21">[21]</a>  It decides on balance
whether the ultimate effect is to substantially lessen competition. A crucial
part of this process (and also
in assessing purpose) is assessing the market
power that results from the agreement. Market power is relevant to purpose in
that
usually parties will not attempt to substantially lessen competition unless
they believe they have some degree of market power. In
some cases they will not.
But why did they attempt to substantially lessen competition if they believed
they could not? As for effect
or likely effect, there can be none unless the
parties to the agreement have some degree of market power.</p>
<p>While this is true of most types of anticompetitive agreements, it is not
true of price fixing. Section 30 deems any agreement which
has the purpose or
effect or likely effect of fixing controlling or maintaining prices to</p>
<p>substantially lessen competition. Similarly United States courts hold price
fixing to be a per se breach of section 1 of the Sherman
Act.<a name="FootnoteB22" href="#Footnote22">[22]</a>  The
proscribed purpose and effect is not to substantially lessen competition but
rather to fix, control or maintain prices. Market
power plays no part under
section 30. Why has Parliament (and United States courts) decided this? The next
part of this article discusses
the reasons for such a harsh view of price
fixing.</p>
<h3>
<a name="Heading26"></a><b>III. WHY COURTS CONDEMN PRICE FIXING</b></h3>
<p>To understand why competition law treats price fixing harshly one must
examine it using neoclassical price theory. When competitors
join together to
agree on price they form a cartel. Professors Phillip Areeda and Donald Turner
have defined a cartel as "an arrangement
in which competing firms have
substituted an agreement on price, output or related matters for independent
decision making."<a name="FootnoteB23" href="#Footnote23">[23]</a> </p>
<p>Price</p>
<p>Transfer of consumer surplus from consumers to the monopolist</p>
<p>A1 - dead weight loss</p>
<p>Monopoly Competitive Quantity        Quantity</p>
<p>Average Cost = Marginal Cost</p>
<p>Demand</p>
<p>Quantity</p>
<p></p>
<p></p>
<p>By forming a cartel its members, by acting together, reduce output and raise
prices just like a single firm monopolist. The model
of monopoly market
structure shows the harm of cartels.</p>
<p>Marginal Revenue</p>
<p></p>
<p>The result of monopoly is higher price and decreased output leading to a
misallocation of resources (allocative inefficiency) and
a loss of consumer
surplus as consumers transfer resources to the monopolist. The same thing
results with a cartel. Its members act
like a single firm monopolist resulting
in reduced output and increased price to the detriment of consumers. A cartel is
worse than
a monopoly. Due to economies of scale a monopolist may be able to
lower its cost curve and produce goods at a lower cost.<a name="FootnoteB24" href="#Footnote24">[24]</a> This means
a monopolist can produce a quantity of output at a lower cost than would be the
case in a competitive market. However,
as Professor Michael Trebilcock notes
this is not the case with cartels as:</p>
<blockquote>
Unlike some monopolies [cartels] will almost never exhibit offsetting productive
efficiency gains that may be realisable from greater
economies of scale, because
the scale of the participating production units has not
changed.<a name="FootnoteB25" href="#Footnote25">[25]</a> </blockquote><p>A cartel is even worse, from a consumer
welfare perspective, in that invariably individual members of the cartel will
have different
cost curves. Some will be more efficient than others.
Accordingly, a cartel will agree on a price which enables its least efficient
member to make a profit.<a name="FootnoteB26" href="#Footnote26">[26]</a>  Cartels are unambiguously inefficient -
both allocatively and productively. Thus, since cartels seldom, if ever, produce
any beneficial
productive efficiencies and invariably restrict output and
increase price, competition law treats them harshly and deems them to
substantially lessen competition or declares them per se illegal.</p>
<p>Commentators have heralded this harsh treatment of cartels as one of
competition law's finest hours. Bork has stated:</p>
<blockquote>
The subject of cartels lies at the centre of antitrust policy. The law's oldest
and properly qualified most valuable rule states
that it is illegal per se for
competitors to agree to limit rivalry among themselves ... without doubt
thousands of cartels have
been made less effective and other thousands have
never been broached because of the overhanging threat of this rule. Its
contributions
to consumer welfare over the decades have been
enormous.<a name="FootnoteB27" href="#Footnote27">[27]</a> .</blockquote><p>Similarly Judge Richard Posner has
noted:</p>
<blockquote>
the elimination of the formal cartel ... is an impressive and remains the major
achievement of American antitrust law.<a name="FootnoteB28" href="#Footnote28">[28]</a> </blockquote><p>Despite this
encomium some commentators have objected to competition law's harsh treatment of
price fixing.<a name="FootnoteB29" href="#Footnote29">[29]</a>  Generally these criticisms are based on the effect
(or rather the lack of effect) of a price fixing cartel and the reasons parties
form cartels. This article considers these objections.</p>
<p>One argument turns on cartels having very little, if any, anticompetitive
effect. This is in the sense of there being little or no
dead weight loss.
Despite a cartel's obvious purpose of reduced output and increased price, it may
actually have only minor (or no)
effect on price and output. This is due to the
instability of cartels. This results from the members of a cartel having
different
cost curves. Some members will be more efficient than others. A cartel
must agree on a single price. Yet the profit maximising price
of each member
will be different. The cartel price must be such as to cover the least efficient
member's costs. The more efficient
members may well feel chagrined at such a
price. Thus, actually agreeing on a price will be difficult. They will also have
the incentive
to cheat on the cartel by lowering price and increasing
sales.<a name="FootnoteB30" href="#Footnote30">[30]</a>  These sales will be profitable. This is especially so in a
cartel with significant product differentiation,<a name="FootnoteB31" href="#Footnote31">[31]</a>  where each
member's production is too small to affect market price or in industries with
relatively high fixed costs.<a name="FootnoteB32" href="#Footnote32">[32]</a>  As Professor Herbert Hovenkamp notes
in such industries short run marginal costs are minute in comparison to total
cost. As a result,
the cartel price which covers total costs plus monopoly
profits will be much higher than the lowest price that is profitable to each
cartel member. Each member can give a substantial secret price reduction and
still make large profits from the transaction.<a name="FootnoteB33" href="#Footnote33">[33]</a> </p>
<p>Once other cartel members have detected cheating it may spread, leading to
the cartel's collapse. The United States Supreme Court
recognised these
difficulties with cartels in <i>Business Electronics Inc v Sharp Electronics Co
</i>when it noted:</p>
<blockquote>
Cartels are neither easy to form nor easy to maintain. Uncertainty over the
terms of the cartel particularly the prices to be charged
in the future
obstructs both formation and adherence by making cheating
easier.<a name="FootnoteB34" href="#Footnote34">[34]</a> </blockquote><p>In the late nineteenth century so many
cartels in the United States broke up that John D Rockefeller characterised
cartels as "ropes
of sand."<a name="FootnoteB35" href="#Footnote35">[35]</a> Similarly Trebilcock notes:</p>
<blockquote>
T]hese arguments have some force. Indeed a number of the cartel arrangements in
issue in the common law cases appear to have evolved
out of earlier cartel
attempts that disintegrated in the face of internal and external
competition.<a name="FootnoteB36" href="#Footnote36">[36]</a> </blockquote><p>Cheating is not the only threat to a
cartel's stability. Members may engage in heavy forms of non-price
competition.<a name="FootnoteB37" href="#Footnote37">[37]</a>  The very success of a cartel may cause its
destruction. If cartel members manage to earn monopoly profits they will attract
new
entrants (assuming no substantial entry barriers exist). These new entrants,
assuming they do not join the cartel, will drive prices
down.<a name="FootnoteB38" href="#Footnote38">[38]</a> </p>
<p>To be truly effective a cartel must be able to detect cheating quickly. As
Professor Ian Ayres notes that is not enough - it must
be able to punish
cheaters.<a name="FootnoteB39" href="#Footnote39">[39]</a>  This can be extremely difficult. Accordingly cartels are
only likely to endure in certain circumstances. Professors Dennis Carlton
and
Jeffrey Perloff identify the following market characteristics for long lived
cartels viz: (i) high levels of seller concentration;
(ii) substantial product
homogeneity; (iii) high transaction frequency and (iv) high entry
barriers.<a name="FootnoteB40" href="#Footnote40">[40]</a> </p>
<p>Despite many cartels' lack of anticompetitive effect due to their instability
the law's harsh treatment of them is justified. Many
cartels have endured for
long periods and caused considerable harm. Professor Douglas Greer argues some
cartels have resulted in
price increases of 20 - 60 percent.<a name="FootnoteB41" href="#Footnote41">[41]</a> 
Professor William Shepherd argues the average price-fixing agreement increases
price by 10 - 30 percent.<a name="FootnoteB42" href="#Footnote42">[42]</a>  In any case even a short cartel causes
efficiency losses during its life. A cartel which makes an argument of lack of
effect should
not receive any sympathy. It is in effect saying we tried to
distort the market but failed due to cheating or market circumstances
beyond our
control.<a name="FootnoteB43" href="#Footnote43">[43]</a>  The law rightly condemns cartels under the purpose test.
Furthermore, the costs of policing a cartel to prevent cheating are part
of the
losses cartels cause.<a name="FootnoteB44" href="#Footnote44">[44]</a> </p>
<p>Professor Thomas Kauper is surely correct when he notes:</p>
<blockquote>
... when the harm caused by successful cartels is clear and their capacity to
endure is unknown, a prohibition of cartels is
appropriate.<a name="FootnoteB45" href="#Footnote45">[45]</a> </blockquote><p>The same comments apply to those
commentators who argue it is a waste of time to condemn a price fixing agreement
where the participants
lack market power.<a name="FootnoteB46" href="#Footnote46">[46]</a>  If participants lack it,
industry output will not fall nor will prices rise. The reason is that the
participants were either too
small a part of the market or competitors reduced
price in response to the cartel's price rise. Liability still arises. Under
section
30 market power is irrelevant. Two corner dairy owners who fix prices
are just as liable under section 30 as the owners of price
fixing
multinationals, despite the disparity in market power. However, again the cartel
members had an obvious competitive purpose.
It does no harm to condemn such an
agreement as it produces no benefit. Condemning also has the beneficial effect
of deterring other
would be price fixers. Perhaps the last word on the lack of
market power and price fixing should be with Professor Thomas Krattenmaker
who
notes:</p>
<blockquote>
Indeed the very suggestion, in such cases, that the competing firms lacked
market power is incredible. Why did they agree to fix
prices if they could not
do so?<a name="FootnoteB47" href="#Footnote47">[47]</a> </blockquote><p>Lack of or little effect should be (and is)
irrelevant when considering liability for cartels. However, it will be relevant
when assessing
a plaintiff's damages in a price fixing case.<a name="FootnoteB48" href="#Footnote48">[48]</a> </p>
<p>A closely related argument to the lack of effect one, is the excuse that a
price fix deserves no condemnation as the price fixed was
reasonable or the same
as would have occurred in a competitive market. Courts have wisely given such
arguments a short shrift. The
defendants to a price fixing claim raised such an
argument before the United States Supreme Court in <i>United States v Trenton
Potteries Co.<a name="FootnoteB49" href="#Footnote49">[49]</a>  </i>Justice Harlan Stone rejected it. His comments
are still apposite. He argued that even price fixes which set a reasonable price
are
too difficult to monitor. "... The reasonable price fixed today may through
economic and business changes become the unreasonable
price of tomorrow."
Furthermore assessing a reasonable price was not the job for judges. Judges
could only find such a price "after
a complete survey of our economic
organisation and rival philosophies."<a name="FootnoteB50" href="#Footnote50">[50]</a> </p>
<p>A moment's reflection reveals that, in the context of price fixing, a
reasonable price is impossible, not only for the judiciary to
determine, but</p>
<p>for everyone also as well. No one price, by itself, is reasonable unless
compared with the price set by supply and demand in a free
market. Price fixing
by its very nature distorts supply and demand. Courts thus, have no reference to
assess a price's reasonableness.<a name="FootnoteB51" href="#Footnote51">[51]</a>  In any case courts would have to
know the demand curve over all possibly relevant ranges of output and the
marginal cost curve over
the same region. As Bork notes (albeit in a different
context): "[N]obody knows these curves."<a name="FootnoteB52" href="#Footnote52">[52]</a>  Furthermore, as Justice
Stone noted in <i>Trenton </i>a reasonable price is an ever changing beast.
Assessing whether a price is reasonable is a hopeless task and courts have
wisely rejected
such defences in price fixing cases.</p>
<p>The next group of objections to the law's harsh treatment of price fixing
focuses not on effect but rather on the motives for entering
into a price fixing
agreement. The most common justification for a cartel is that it is necessary to
prevent ruinous or cut throat
competition.<a name="FootnoteB53" href="#Footnote53">[53]</a>  Indeed, Judge Frank
Easterbrook characterises it as "the siren song of the cartel."<a name="FootnoteB54" href="#Footnote54">[54]</a> 
Despite the nineteenth century common law having recognised such a
defence<a name="FootnoteB55" href="#Footnote55">[55]</a>  and the pervasiveness of the excuse, courts operating under
competition law statutes have consistently (albeit with one famous exception)
rejected such a justification. The reason is that such a notion strikes at the
very heart of competition policy. People using such
an excuse are really saying
"we abhor competition". "Let us have an easy life and earn monopoly profits."
However competition is
ruthless. It eliminates inefficient firms. Professor
Joseph Schumpeter described competition as a "gale of creative
destruction."<a name="FootnoteB56" href="#Footnote56">[56]</a>  While competition may harm individual firms, it
serves a far more beneficial social cause. As Areeda and Kaplow note:</p>
<blockquote>
[T]he central point is that losses imposed by competition serve the important
social function of inducing shifts in resource allocation
and inducing producers
to perform more efficiently.<a name="FootnoteB57" href="#Footnote57">[57]</a> </blockquote><p>The "ruinous
competition" argument only applies to industries characterised by high fixed
costs relative to variable costs.<a name="FootnoteB58" href="#Footnote58">[58]</a>  In such situations usually excess
capacity exists. Where firms compete vigorously or demand falls in such
industries firms will
reduce price to where they barely cover variable costs.
This will not be sustainable as all firms will be incurring substantial losses.
In these circumstances competition will be ruinous as it will lead to firms'
bankruptcies and loss of jobs. A cartel prevents this.
As Sullivan notes a more
subtle variation of this excuse is that the cartel enables "an orderly
withdrawal of the excess capacity
in the industry which is the root cause of the
ruinous price competition."<a name="FootnoteB59" href="#Footnote59">[59]</a> </p>
<p>While such an action (forming a cartel) benefits the cartel members it
provides no benefits to society. Why should society suffer
high prices and
reduced output until the cartel members have eliminated excess capacity?</p>
<p>A cartel unlike competition does not speed up this process - rather it
retards it.<a name="FootnoteB60" href="#Footnote60">[60]</a>  Society does not value excess capacity. It prefers
capital to be placed in alternative investments - not in propping up excess
capacity.
Society does not benefit from propping up industries that face ruinous
competition. Forming a cartel prevents resources being allocated
to where
society values them and lets inefficient producers survive. Competition on the
other hand leads to resources going where
society wants them. It provides an
incentive for firms to allocate resources to preferred products. In an industry
with excess capacity
firms that are members of a cartel have no incentive to
reduce price. As Areeda and Kaplow note:</p>
<blockquote>
Competitors have an incentive to keep lowering their prices only if they have
capacity to serve their additional
customers.<a name="FootnoteB61" href="#Footnote61">[61]</a> </blockquote><p>Cartels prevent this or slow down the
process. Competition as mentioned is harsh, and it teaches firms who have
invested in excess
capacity a lesson. Do not over-expand or you will suffer
losses. Cartels prevent such a lesson, slow down the process of the return
to
efficient resource allocation and force consumers to face higher prices.
Competition law rightly takes no notice of the excuse
of the prevention of
ruinous competition.</p>
<p>Another excuse for cartels is that the resulting monopoly profits can finance
socially desirable activities such as research and development
or
innovation.<a name="FootnoteB62" href="#Footnote62">[62]</a>  Competition results in pricing at marginal cost,
leaving no room for innovation. Posner and Easterbrook note some people have
argued
that cartels allow the maintenance of large inventories to avoid
shortages.<a name="FootnoteB63" href="#Footnote63">[63]</a> However, there is little reason to believe this is true.
Why will cartel members use monopoly profits to support innovation? They
have
equal incentive just to pocket the profits. Similarly, it is doubtful that
competition will not lead to desirable innovation.
Furthermore, why should
society want or need research that a competitive market cannot provide?</p>
<p>Another argument for cartels is that they create higher quality products and
prevent dangerous products reaching the public.<a name="FootnoteB64" href="#Footnote64">[64]</a>  Such an argument
reached the United States Supreme Court in <i>National Society of Professional
Engineers v United States.<a name="FootnoteB65" href="#Footnote65">[65]</a>  </i>The society banned competitive
bidding (ie fixed prices) in its canon of ethics on the basis that competition
would drive engineers
to cut costs and produce unsafe bridges and skyscrapers.
The Supreme Court did not have a bar of such an argument. It held it was
completely counter to the concept of competition. It called the argument "a
frontal assault on the basic policy of the Sherman Act."<a name="FootnoteB66" href="#Footnote66">[66]</a> The Court
noted the underlying assumption of competition law is that "competition will
produce not only lower prices, but also better
goods and services."<a name="FootnoteB67" href="#Footnote67">[67]</a> 
Price fixing even with such a motive interferes with free and open markets.
Consumers should be able to decide whether they want
higher quality or lower
priced buildings.</p>
<blockquote>
The heart of our national economic policy long has been faith in the value of
competition. ... The assumption that competition is
the best method of
allocation of resources in a free market recognises that all elements of a
bargain - quality, service, safety
and durability - and not just the immediate
cost, are favourably affected by the free opportunity to select among
alternative offers.<a name="FootnoteB68" href="#Footnote68">[68]</a> </blockquote><p>With respect, this is correct.
If consumers want high quality goods they will pay more for them. Competition
will provide goods of
varying quality at different prices. A consumer then
chooses what he or she wants. If a consumer does not receive the quality goods
he or she desires that is not a problem of competition but rather lack of
consumer information. With a cartel there is one price
and usually one quality.
It deprives the consumer who wants a low price and quality product eg a
no-frills airline ticket. In any
case if consumers do not want quality goods why
should cartel members impose quality and safety standards? That is a job for
government
regulation rather than private self-interested cartel members.</p>
<p>One should treat the last two justifications for cartels sceptically. As
Kauper notes:</p>
<blockquote>
all of these alleged benefits begin with the misallocation of resources price
fixing causes and try to make a benefit of
it.<a name="FootnoteB69" href="#Footnote69">[69]</a> </blockquote><p>Indeed, there is no reason why firms would only
form cartels in situations where they will allegedly benefit consumers. They
occur
far more widely than that.</p>
<p>None of the justifications for cartel price fixing pass muster. Competition
law rightly treats it harshly. The reason is that it has
no benefit to society.
It invariably results in lower output and higher prices. It can cause a great
deal of harm to society. Even
if courts were to analyse price fixing under
section 27 they would come to the same result. The purpose of cartel price
fixing must
be to substantially lessen competition. By deeming price fixing to
be a breach of section 27, section 30 results in considerable
savings in time
and money. A plaintiff does not need to prove market power or define a
market.<a name="FootnoteB70" href="#Footnote70">[70]</a> </p>
<p>As price fixing is tempting to firms the simplicity of the rule against price
fixing acts an effective deterrent.<a name="FootnoteB71" href="#Footnote71">[71]</a>  Firms know they breach the law
if they fix prices. While this is true of cartel price fixing the situation is
not so simple with
price restraints in joint ventures and rules establishing
organised markets. These situations result in increased output and lower
prices.
They are not harmful to society. They benefit it. A literal interpretation of
section 30 would capture such situations. This
is not right. The United States
law has had to deal with such problems. An examination of United States law
reveals a way around
the problem and explains the origins of section 27 and
30.</p>
<p></p>
<p></p>
<p></p>
<p></p>
<p></p>
<h1>
<a name="Heading85"></a><b>IV. UNITED STATES PRICE FIXING
LAW</b><a name="FootnoteB72" href="#Footnote72"><sup>[72]</sup></a> </h1>
<h2>
<a name="Heading86"></a><b><i>Early Cases</i></b></h2>
<p>Section 1 of the Sherman Act 1890 governs agreements between competitors. It
provides:</p>
<blockquote>
Every contract, combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce among the several
States, or with foreign
nations, is declared to be illegal...<a name="FootnoteB73" href="#Footnote73">[73]</a> </blockquote><p>The first case
under section 1 was <i>United States v Trans - Missouri Freight
Association.<a name="FootnoteB74" href="#Footnote74">[74]</a>  </i>It involved a price fixing cartel. Eighteen
railroads which controlled most of the traffic west of the Mississippi river
formed an
association. A committee of the association set rates for rail
transportation. All the association members charged this rate. The
United States
government brought action alleging a breach of section 1. The defendants
disagreed. They argued their prices were reasonable
and that the rate agreement
was necessary to avoid ruinous competition. A complicating factor was that the
Interstate Commerce Act
required all railroad rates be "reasonable and
just."<a name="FootnoteB75" href="#Footnote75">[75]</a>  The government did not suggest the defendants had breached
this Act.</p>
<p>A bare majority of the Supreme Court rejected the defendants' argument.
Justice Rufus Peckham for the majority held that the reasonableness
of the
defendants' rates was irrelevant. He held that the literal wording of section 1
prohibited "all restraints of trade."<a name="FootnoteB76" href="#Footnote76">[76]</a>  This was one and was
therefore illegal.</p>
<p>Justice Edward white for the minority disagreed. He argued that the Sherman
Act imported the common law view that only unreasonable
agreements were illegal.
He wrote:</p>
<blockquote>
[A]lthough a contract may in some measure restrain trade, it is not for that
reason void or even voidable unless the restraint which
produces it be
unreasonable.<a name="FootnoteB77" href="#Footnote77">[77]</a> </blockquote><p>Accordingly he would have upheld the
rate agreement, inter alia, as (i) the defendants' purpose of avoiding ruinous
competition and
thus bankruptcy was reasonable and (ii) their rates were "fair
and reasonable."<a name="FootnoteB78" href="#Footnote78">[78]</a> </p>
<p>Some commentators have derided Justice Peckham's opinion for two reasons.
First for being far too literal and second for contradicting
himself. Peckham
noted that a restrictive covenant ancillary to the sale of a business might not
be included in the statutory ban
on "every" restraint of trade.<a name="FootnoteB79" href="#Footnote79">[79]</a> </p>
<p>However, as Bork notes such a view is unfair.<a name="FootnoteB80" href="#Footnote80">[80]</a>  Peckham's opinion
was largely to defeat white's view of the law. He demonstrated the</p>
<p>impossibility of a reasonable price defence. Only a competitive market can
determine a reasonable price. Peckham wrote:</p>
<blockquote>
[T]he subject of what is a reasonable rate is attended with great uncertainty
...[I]t is exceedingly difficult to formulate even
the terms of the rule itself
which should govern in the matter of determining what would be a reasonable rate
... even after the
standard should be determined there is such an infinite
variety of facts entering into the question of what is a reasonable
rate.<a name="FootnoteB81" href="#Footnote81">[81]</a> </blockquote><p>He thus concluded that such a rule would be
impossible to administer and would make the Act impossible to enforce.</p>
<p>As Bork notes Peckham's distinction between a restrictive covenant
subordinate to a sale and an agreement to set railroad rates contains
the
genesis of the per se rule against price fixing.<a name="FootnoteB82" href="#Footnote82">[82]</a>  Peckham said of
the defendants' agreement:</p>
<blockquote>
There can be no doubt that its direct, immediate and necessary effect is to put
a restraint upon trade or commerce as described in
the
Act.<a name="FootnoteB83" href="#Footnote83">[83]</a> </blockquote><p>It was, thus illegal "no matter what the intent
was on the part of those who signed it."<a name="FootnoteB84" href="#Footnote84">[84]</a> </p>
<p>The next significant case is <i>United States v Joint-Traffic
Association?<a name="FootnoteB85" href="#Footnote85">[85]</a> </i>This also involved a railroad cartel
indistinguishable from the one in <i>Trans - Missouri. </i>Here the defendants
argued that <i>Trans-Missouri's </i>literal interpretation was unworkable. Again
a majority of the Court rejected the defendants' arguments. Again Justice
Peckham wrote
for the majority. This time, following two Supreme Court cases
decided the same year <i>Hopkins v United States<a name="FootnoteB8" href="#Footnote8">[8]</a>  </i>and <i>Anderson
v United States,<a name="FootnoteB87" href="#Footnote87">[87]</a>  </i>his Honour held that section 1 only forbade
agreements which "directly" restrained trade.<a name="FootnoteB88" href="#Footnote88">[88]</a>  Price fixing was a
direct restraint of trade. Indirect restraints on the other hand were legal. He
gave the example of a covenant
not to compete with the purchaser of a business.
This was "a contract not within the meaning of the act."<a name="FootnoteB89" href="#Footnote89">[89]</a>  He gave
further examples of indirect restraints such as mergers and the designation by
rivals of a joint selling agency.<a name="FootnoteB90" href="#Footnote90">[90]</a> </p>
<p>While indicating restraints such as price fixing were to be condemned quickly
under the Act, <i>Joint-Traffic </i>provides little guidance on how to deal with
other restraints. As Professor Stephen Ross notes the distinction between direct
and
indirect restraints is opaque.<a name="FootnoteB91" href="#Footnote91">[91]</a>  It provides no operational
guidance or doctrinal basis for making such a distinction. As Sullivan
notes:</p>
<blockquote>
Justice Peckham's opinions did leave unanswered questions. They outlined no
systematic ways in which concerted arrangements which
violate the Act were to be
distinguished from those which do not.<a name="FootnoteB92" href="#Footnote92">[92]</a> </blockquote><h2>
<a name="Heading105"></a><i>The Doctrine of Ancilliary Restraints</i></h2>
<p>In <i>United States v Addyston Pipe &amp; Steel Co<a name="FootnoteB93" href="#Footnote93">[93]</a>  </i>Judge
William Howard Taft (as he then was)<a name="FootnoteB94" href="#Footnote94">[94]</a>  provided a methodology for
doing just that. <i>Addyston </i>involved a cartel. The defendants were six
producers of cast iron pipe. They divided the country into territories for
themselves,
jointly fixed prices for each territory and divided business among
themselves. Their purpose was to fix prices low enough to discourage
new entry.
The prices however, were higher than what would have resulted in a competitive
market. Again the defendants sang the siren
song of the cartel arguing the
agreements were necessary to avoid ruinous competition and that the prices were
reasonable. The Sixth
Circuit Court of Appeals disagreed. Judge Taft set out a
methodology for determining what agreements were legal and illegal under
the
Act. Claiming to use the common law restraint of trade<a name="FootnoteB95" href="#Footnote95">[95]</a>  Taft said
that the Act forbade agreements whose "sole object" was to restrain trade.</p>
<blockquote>
Where the sole object of both parties in making the contract ... is merely to
restrain competition and enhance or maintain prices,
it would seem that there
was nothing to justify the restraint.<a name="FootnoteB96" href="#Footnote96">[96]</a> </blockquote><p>Taft called
such restraints naked restraints. A cartel is such a restraint. Courts can
condemn such restraints quickly and without
considering the defendants' purpose
or the reasonableness of their prices. Taft set out why a reasonable price
defence was an impossibility
- thereby criticising Justice White's views.</p>
<blockquote>
It is true that there are some cases, in which the courts, mistaking, as we
conceive, the proper limits of the relaxation of the
rules for determining the
unreasonableness of restraints of trade, have set sail on a sea of doubt, and
have assumed the power to
say, in respect of contracts which have no other
purpose and no other consideration on either side than the mutual restraint of
the
parties, how much restraint of competition is in the public interest, and
how much is not.<a name="FootnoteB97" href="#Footnote97">[97]</a> </blockquote><p>Taft argued a reasonableness test
was unworkable. "The manifest danger in the administration ofjustice according
to shifting, vague,
and indeterminate a standard would seem to have a strong
reason against adopting it."<a name="FootnoteB98" href="#Footnote98">[98]</a>  He said of agreements whose sole aim
was to restrain competition "there is no measure of what is necessary to the
protection of
either party, except the vague and varying opinion of judges as to
how much, on the principles of political economy, men ought to
be allowed to
restrain competition."<a name="FootnoteB99" href="#Footnote99">[99]</a> </p>
<p>Unlike Justice Peckham in <i>Trans-Missouri </i>Taft did not think that all
types of restraint were illegal under section 1. Restraints which were ancillary
to a lawful purpose and
reasonably necessary to accomplish that purpose were
lawful. To be lawful a restraint must be ancillary (ie subordinate and
collateral)
to another legitimate agreement and necessary to make that agreement
effective. He wrote:</p>
<blockquote>
[I]t would certainly seem to follow from the tests laid down for determining the
validity of such an agreement 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.<a name="FootnoteB100" href="#Footnote100">[100]</a> </blockquote><p>Rather than focus on the restraint itself,
courts should look at the main purpose of the agreement that the restraint is
designed
to enhance. This was because:</p>
<blockquote>
[t]he main purpose of the contract suggests that the measure of protection
needed, or furnishes a sufficiently uniform standard by
which the validity of
such restraints may be judicially determined.<a name="FootnoteB101" href="#Footnote101">[101]</a> </blockquote><p>Taft
called such restraints ancillary restraints. He gave five examples of ancillary
restraints lawful at common law and presumably
under the Act.</p>
<blockquote>
[A]greements<br>
1)	by the seller of property or business not to compete with the buyer in such a
way as to derogate from the value of the property
or business sold;<br>
2)	by a retiring partner not to compete with the firm;<br>
3)	by a partner pending the partnership not to do anything to interfere, by
competition or otherwise, with the business of the firm;<br>
(A)	by the buyer of property not to use the same in competition with the
business retained by the seller; and<br>
4)	(5) by an assistant, servant or agent not to compete with his master or
employer after the expiration of his time of service.<a name="FootnoteB102" href="#Footnote102">[102]</a> <br>
This was not an exhaustive list of lawful ancillary
restraints.<a name="FootnoteB103" href="#Footnote103">[103]</a> </blockquote><p>Once a court has decided that an
agreement's main purpose is legitimate it then determines whether the restraint
is essential to the
implementation of the underlying transaction. If so, the
restraint is lawful unless it gives the defendants' monopoly power. However,
if
the restraint is wider than necessary to meet the parties' needs it will be
unlawful. This is akin to the less restrictive alternative
analysis.<a name="FootnoteB104" href="#Footnote104">[104]</a> </p>
<p>Taft's methodology has become known as the doctrine of ancillary restraints.
Professors Thomas Sullivan and Jeffrey Harrison have
graphically represented it
as follows:<a name="FootnoteB105" href="#Footnote105">[105]</a> </p>
<p></p>
<p>One can view Taft's ancillary restraints doctrine as a purpose based
analysis.<a name="FootnoteB106" href="#Footnote106">[106]</a>  Naked restraints such as cartel price fixing have the
sole purpose</p>
<p>of restraining competition. Once a court identifies a restraint as naked it
condemns it without further ado. This is akin to the deeming
rule under section
30. The effect of naked restraints is also invariably to decrease competition.
With an ancillary restraint its
purpose is legitimate and procompetitive. This
can include lowering the costs of production and distribution or creating a new
market
or product. This purpose is lawful. Nor will any anticompetitive effect
arise. Unlike a naked cartel no allocative or productive
inefficiencies will
result. If the restraint is wider than necessary one must doubt whether the
parties' true purpose was the claimed
legitimate one. Similarly if the restraint
is wider than necessary an anticompetitive effect will invariably arise. The
doctrine
enables courts to distinguish between harmful price fixing and literal
price fixing ancillary to a legitimate and procompetitive
joint venture.</p>
<p>Commentators from across the antitrust spectrum have praised Taft's
methodology. Sullivan calls it a "tour de force"<a name="FootnoteB107" href="#Footnote107">[107]</a>  claiming Taft
"spelled out a rational and useful way of distinguishing between lawful and
unlawful restraints."<a name="FootnoteB108" href="#Footnote108">[108]</a>  Bork characterises Taft's opinion "as one of
the greatest, if not the greatest, antitrust, opinions in the history of the
law."<a name="FootnoteB109" href="#Footnote109">[109]</a>  Ross calls it "masterful"<a name="FootnoteB110" href="#Footnote110">[110]</a>  and notes:</p>
<blockquote>
Taft's approach transcends antitrust ideology and represents the soundest means
of distinguishing between desirable and offensive
horizontal agreements,
regardless of one's views on the goals of
antitrust.<a name="FootnoteB111" href="#Footnote111">[111]</a> </blockquote><p>Unfortunately the Supreme Court merely
affirmed Taft's opinion and promptly seemed to forget about his methodology.
However various
Circuit Courts of Appeal still used it.<a name="FootnoteB112" href="#Footnote112">[112]</a>  During the
1980's the Supreme Court resurrected it and applied it without overtly saying
so.<a name="FootnoteB113" href="#Footnote113">[113]</a>  Several Circuit Courts interpreted the Supreme Court's
precedents as re-establishing the doctrine. They now apply it.<a name="FootnoteB114" href="#Footnote114">[114]</a> </p>
<h2>
<a name="Heading134"></a><i>The Rule of Reason</i></h2>
<p>In the meantime in 1911 the Supreme Court used a different methodology which
it enunciated in <i>Standard Oil Co v United States ( Standard Oil)<a name="FootnoteB115" href="#Footnote115">[115]</a> 
</i>and its companion case <i>United States v American
Tobacco.<a name="FootnoteB116" href="#Footnote116">[116]</a>  </i>These cases did not involve an agreement as such.
They were merger and monopolisation cases. However Chief Justice White (as he
had
become) set out a standard for assessing the legality of agreements under
section 1 of the Sherman Act.</p>
<p>From a phrase in his opinion this became known as the "rule of reason". The
rule of reason was essentially a purpose and effect test.<a name="FootnoteB117" href="#Footnote117">[117]</a> 
According to White the Act prohibited "all contracts or acts which were
unreasonably restrictive of competitive conditions, either
from the nature or character of
the contract or act or where the surrounding circumstances were such as to
justify the conclusion"
that they had not the "legitimate purpose of reasonably
forwarding personal interest and developing trade" but rather had been intended
"to bring about the evils, such as enhancement of prices, which were considered
to be against public policy."<a name="FootnoteB118" href="#Footnote118">[118]</a> </p>
<p>White noted that the Act was wide enough to reach every agreement concerning
trade and commerce. However, the Act did not forbid every
agreement. Courts had
to judge agreements on a "standard of reason" to determine whether they breached
the Act. He later used the
famous term "rule of reason" to describe this
process.<a name="FootnoteB119" href="#Footnote119">[119]</a>  The way to do this was to assess an agreement's purpose
and effect. White viewed his rule of reason as covering agreements which
"operated to the prejudice of public interests by unduly restricting competition
... either because of their inherent nature or effect
or because of the evident
purpose of the acts ..."<a name="FootnoteB120" href="#Footnote120">[120]</a> </p>
<p>White, thus sets out a three part rule of reason. First the Act "conclusively
presumed" certain agreements to be illegal because their
inherent nature was to
injure the public. Second agreements that were not inherently anticompetitive
were still unreasonable if their
"evident purpose" was to restrict competition.
Third, other agreements breached the Act if their inherent effect was to
restrain
trade.<a name="FootnoteB121" href="#Footnote121">[121]</a> </p>
<p>This purpose and effect test is the origin of the section 27 test. Also as
Sullivan and others have noted the first part of the rule
contains an embryonic
version of the per se rule against naked or cartel price fixing.<a name="FootnoteB122" href="#Footnote122">[122]</a> 
However, it was possible to read the cases so that the rule of reason applied to
both naked and ancillary restraints. This is exactly
what the Supreme Court did
in its next great section 1 case, viz: <i>Chicago Board of Trade v United
States. </i><a name="FootnoteB123" href="#Footnote123">[123]</a> </p>
<p><i>Chicago Board of Trade </i>dealt with the Board's "Call Rule". The Board
was an association of grain brokers, warehouses and others in the grain trade
who operated
the United States's largest organised market for grain trades.
Under the "Call Rule" competing grain dealers agreed that they would
only
purchase grain, that was in transit to Chicago after the exchange had closed, at
the closing price of the day. This price was
termed the call price after the
afternoon session which was termed the Call Session. The United States
government alleged this was
an illegal price fix under section 1 as it fixed
prices during part of the day. In effect, the rule confined price competition to
the time the exchange was open. The rule did not fix the level of the closing
price. Bidders during the Call Session determined this.
The Supreme Court led by
Justice Brandeis held the rule did not breach section 1. In so doing Brandeis
set forth the now classic
formulation of the rule of reason. He wrote:</p>
<blockquote>
[T]he legality of an agreement or regulation cannot be determined by so simple a
test, as whether it restrains competition. Every
agreement concerning trade,
every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test
of
legality is whether the restraint imposed is such as merely regulates and perhaps thereby
promotes competition or whether it is such
as may suppress or even destroy
competition. To determine that question the court must ordinarily consider the
facts peculiar to
the business to which the restraint is applied; its condition
before and after the restraint was imposed; the nature of the restraint
and its
effect, actual or probable. The history of the restraint, the evil believed to
exist, the reason for adopting the particular
remedy, the purpose or end sought
to be attained, are all relevant facts. This is not because a good intention
will save an otherwise
objectionable regulation or the reverse; but because
knowledge of intent may help the court to interpret facts and to predict
consequences.<a name="FootnoteB124" href="#Footnote124">[124]</a> </blockquote><p>Using this test the court upheld the
Call Rule. It did not examine the actual price or its reasonableness. Rather it
examined the
Rule's purpose and effect. The most important of these were to
regulate the hours of business, to break up the monopoly held by the
few
warehouses willing to purchase during the night and to perfect the exchange's
operation by increasing the number of trades made
in it.<a name="FootnoteB125" href="#Footnote125">[125]</a>  Of
special appeal to Brandeis was that the rule "shorten[ed] the working day or at
least limited the period of most exacting activity."<a name="FootnoteB126" href="#Footnote126">[126]</a> </p>
<p>The Court's decision has been controversial.<a name="FootnoteB127" href="#Footnote127">[127]</a>  So, however, has
been the Court's formulation of the rule of reason.<a name="FootnoteB128" href="#Footnote128">[128]</a>  The
formulation provides little operational guidelines or doctrine to distinguish
between legal and illegal agreements. Brandeis's
distinction between a restraint
which "merely regulates and perhaps thereby promotes competition or whether it
such as may suppress
or even destroy competition"<a name="FootnoteB129" href="#Footnote129">[129]</a>  offers no guide
on how to determine what category an agreement falls into. Brandeis's answer is
to "consider the facts peculiar
to the business". As Professor Thomas Arthur
notes this means all the facts. One needs to examine the agreements' history,
context,
competitive impact and so on. Complex market power and definition
questions become relevant. This leads to large long and expensive
trials.<a name="FootnoteB130" href="#Footnote130">[130]</a>  While Brandeis gave a list of relevant factors he provided
no guide on how to rank them or link them to purpose and effect. This
also leads
to huge trials and reduced predictability. Max Blecher described Brandeis's rule
of reason as "a euphemism for an endless
economic inquiry resulting in a defence
verdict."<a name="FootnoteB131" href="#Footnote131">[131]</a>  Furthermore, non-economic factors such as decreased
working days become relevant. Everything does. This makes the law
formless.<a name="FootnoteB132" href="#Footnote132">[132]</a> </p>
<p>The case left unanswered questions. Could ruinous competition be a defence to
price fixing? It certainly appeared so. <i>Chicago Board of Trade </i>let courts
set sail on Taft's sea of doubt. However, the case's formulation of the rule of
reason receives numerous references, as
one can cite it in support of almost any position. Lawyers even quote it in New Zealand today.</p>
<p>In the next case, <i>United States v Trenton Potteries<a name="FootnoteB133" href="#Footnote133">[133]</a>  </i>the
Supreme Court faced the issue of whether a reasonable price saved a price-fixing
cartel from liability using the <i>Chicago Board of Trade </i>rule of reason.
The defendants controlled 82 percent of the United States market for vitreous
pottery used in bathrooms and lavatories.
They had agreed on prices and only to
sell to certain wholesalers. The government alleged this breached section l. At
trial, the
judge instructed the jury not to consider whether the prices fixed
were reasonable. Liability depended simply on the parties entering
into the
price fixing agreement. The Court of Appeals reversed on the basis of a faulty
jury instruction. This was in line with the
rule of reason inquiry of <i>Chicago
Board of Trade. </i>The Supreme Court reversed and upheld the defendants'
conviction. In so doing it rejected the defence that fixed prices may be
reasonable.
Justice Harlan Stone held:</p>
<blockquote>
The aim and result of every price-fixing agreement, if effective, is the
elimination of one form of competition. The power to fix
prices, whether
reasonably exercised or not, involves power to control the market and to fix
arbitrary and unreasonable prices. The
reasonable price fixed today may through
economic and business changes become the unreasonable price of tomorrow ...
Agreements which
create such potential power may well be held to be in
themselves unreasonable or unlawful restraints, without the necessity of minute
inquiry whether a particular price is reasonable or unreasonable as fixed and
without placing on the government in enforcing the
Sherman Law the burden of
ascertaining from day to day whether it has become unreasonable through the mere
variation of economic
conditions.<a name="FootnoteB134" href="#Footnote134">[134]</a> </blockquote><p>Stone also
distinguished <i>Chicago Board of Trade </i>(Justice Brandeis did not
participate in the case). He held:</p>
<blockquote>
<i>[Chicago Board of Trade], </i>dealing as it did with a regulation of a board
of trade, does not sanction a price agreement among competitors in an open
market,
such as is presented here.<a name="FootnoteB135" href="#Footnote135">[135]</a> </blockquote><p>As commentators
have noted this case also establishes a per se rule against price
fixing.<a name="FootnoteB136" href="#Footnote136">[136]</a>  The case arguably holds that with price fixing a court
only asks whether an agreement to fix prices exists. If so the agreement
is
illegal and other factors (such as the prices' reasonableness) are irrelevant.
Courts can infer illegal purpose from the agreement.</p>
<p>However, the Court did use the term "if effective" in its reasoning. This
left open the question of whether market power was necessary
to a finding of per
se illegality.<a name="FootnoteB137" href="#Footnote137">[137]</a>  However, by the time of <i>Trenton </i>the Supreme
Court was well on the way to holding price fixing per se illegal - if it hadn't
already. Unfortunately during the depression
the Supreme Court took a detour in
<i>Appalachian Coals Inc v United States.<a name="FootnoteB138" href="#Footnote138">[138]</a> </i></p>
<p>This case involved price fixing by 137 coal producing companies. They
accounted for 12 percent of the bituminous production east of
the Mississippi
River and 74 percent in Appalachia. To combat falling prices the companies
formed a new company to act as the producers'
exclusive selling agent. They
instructed it to get " the best prices obtainable" and if it could not sell all
its coal, it had to
allocate orders among the companies. Thus, the companies
formed a sales cartel. The companies relied on the ruinous competition defence.</p>
<p>Following <i>Trenton </i>the lower court found the agreement illegal. The
Supreme Court reversed. Chief Justice Charles Evans Hughes held a court had to
assess
an agreement's essential reasonableness. As in <i>Chicago Board of Trade
</i>a court had to engage in "a close and objective scrutiny of particular
conditions and purpose"<a name="FootnoteB139" href="#Footnote139">[139]</a>  in examining an agreement. His Honour
noted "the deplorable economic conditions" in the industry. He concluded the
sales agent had
no power to fix or affect prices. He noted the industry had high
numbers of distress sales. He described these as "injurious and
destructive
practices"<a name="FootnoteB140" href="#Footnote140">[140]</a>  that demanded correction. He said that "the coal
competes with itself, thereby resulting in abnormal and destructive competition
which depresses the price for all coals in the market."<a name="FootnoteB141" href="#Footnote141">[141]</a>  He held
the agreement's purpose was to stop such ruinous practices and was thus legal.
Another reason was that the defendants' claimed
purpose of fostering "a better
and more orderly market" was valid.<a name="FootnoteB142" href="#Footnote142">[142]</a>  Finally the likely effect of
an agreement determined liability. As the defendants had not implemented it,
purpose alone could not
condemn it.<a name="FootnoteB143" href="#Footnote143">[143]</a> </p>
<p><i>Appalachian Coals </i>stands alone. For the first and last time the
Supreme Court had taken notice of a cartel's siren song. Despite valiant
subsequent
attempts to distinguish it, <i>Appalachian Coals </i>is the only case
where the Court upheld a naked price fixing cartel.<a name="FootnoteB144" href="#Footnote144">[144]</a>  As
commentators have noted the reason is the time the Court decided the case. It
was the height of the depression. Society had had
its faith in competition
shaken. No Judge, no matter how great, can be immune to such parlous and
desperate times as a great depression.<a name="FootnoteB145" href="#Footnote145">[145]</a> </p>
<p>However, <i>Appalachian Coals </i>did not last long as a precedent. In 1940
the Supreme Court launched its most swinging attack against price fixing and
held it to
be per se illegal. The case? <i>United States v Socony-Vacuum Oil
Co.<a name="FootnoteB146" href="#Footnote146">[146]</a> </i></p>
<h2>
<a name="Heading160"></a><i>The Per Se Rule</i></h2>
<p><i>Socony </i>involved similar facts to <i>Appalachian Coals, </i>except it
involved the oil industry. Oil refining was depressed. Independent refiners had
insufficient storage capacity. They were
dumping gasoline at give-away prices.
This depressed prices. Such gasoline was termed distress gasoline. The major oil
companies
informally agreed to buy all of it from the independent refiners. They
did not agree on a set price - rather they bought at the "fair
going market
price." As they had storage capacity and developed distribution systems they
succeeding in removing much of the distress
gasoline from the market. Although
such gasoline eventually reached the market it had less effect on price than it
would have had
under normal competition. Relying on <i>Appalachian Coals </i>the
defendants argued their purpose was to eliminate "competitive evils." In short
they invoked the ruinous competition defence. Justice
William Douglas emphatically rejected
such a defence. He held:</p>
<blockquote>
If the so-called competitive abuses were to be appraised here, the
reasonableness of prices would necessarily become an issue in
every price-fixing
case. In that event the Sherman Act would soon be emasculated
...<a name="FootnoteB147" href="#Footnote147">[147]</a> </blockquote><p>In footnote 59 Douglas set out why price fixing
is illegal.</p>
<blockquote>
Whatever economic justification particular price fixing agreements may be
thought to have, the law does not permit an inquiry into
their reasonableness.
They are all banned because of their actual or potential threat to the central
nervous system of the economy.<a name="FootnoteB148" href="#Footnote148">[148]</a> </blockquote><p>Douglas also
declared price fixing to be per se illegal. This was the first use of this now
classic phrase:</p>
<blockquote>
Congress ... has not permitted the age-old cry of ruinous competition and
competitive evils to be a defence to price fixing conspiracies.
It has no more
allowed genuine or fancied competitive abuses as a legal justification for such
schemes that it has the good intentions
of the members of the combination ....
Under the Sherman Act a combination formed for the purpose and with the effect
of raising,
depressing, fixing, pegging or stabilising the price of a commodity
in interstate commerce is illegal per se.<a name="FootnoteB149" href="#Footnote149">[149]</a> </blockquote><p>According
to the Court anything that tampered with price structures was unlawful price
fixing. To determine whether an agreement fixed
prices one had to examine its
purpose and effect. However, market power was irrelevant to this exercise. In
footnote 59 Douglas held:</p>
<blockquote>
[We do] not mean that both a purpose and a power to fix prices are necessary for
establishment of a conspiracy under section 1 of
the Sherman Act. That would be
true if power or ability to commit an offence was necessary in order to convict
a person of conspiring
to commit it. But ... conspiracies under the Sherman Act
are not dependent on any overt act other than the act of conspiring ....
In view
of these considerations a conspiracy to fix prices violates section 1 of the Act
though ... it is not established that the
conspirators had the means available
for accomplishment of their objective ...<a name="FootnoteB150" href="#Footnote150">[150]</a> </blockquote><p>In this
case the Court had no difficulty in discerning a purpose to raise and to
stabilise price. Although not substantively necessary
in light of the stark
evidence of purpose, the Court also found the agreement had an increasing and
stabilising effect on price.
Thus, before a court will call an agreement price
fixing it analyses its purpose and effect. As Professor John Allison notes:</p>
<blockquote>
	in <i>Socony-Vacuum </i>the Court, before it was willing to call the
arrangement price-fixing,<br>
did employ a purpose and effect analysis every bit as elaborate as would have
been necessary under the rule of reason.<a name="FootnoteB151" href="#Footnote151">[151]</a> </blockquote><p>Thus,
after <i>Socony </i>two types of agreement fell for analysis under section 1.
First the per se category. At this stage only price fixing belonged to this
category. Once a court held an agreement was price fixing it condemned it
summarily. Second the rule of reason category from <i>Standard Oil. </i>Here a
court had to do an extensive analysis as mandated by <i>Chicago Board of Trade
</i>before pronouncing on its legality. To determine whether an agreement fell
within the per se category a court examined its purpose
and effect. Once it had,
it called the agreement price fixing and declared it illegal per se. The process of determining whether
an agreement was price
fixing became known as characterisation. Once a court characterised an agreement
as price fixing, that was
it.</p>
<p><i>Socony-Vacuum's </i>definition of price fixing as "tampering with the
price structure" is extremely wide. It is capable of capturing every agreement
which
affects price whether directly or indirectly. This not only includes naked
cartels but also legitimate ancillary restraints such
as joint ventures. Under
<i>Socony-Vacuum </i>courts could characterise such procompetitive agreements as
price fixing and declare them per se illegal. Such a result would be ridiculous
and contrary to competition law's basic policy. This did not happen.</p>
<h4>
<a name="Heading176"></a>Modern Developments</h4>
<p>The Supreme Court did not encounter an ancillary price restraint agreement
until the late 1970's and 1980's when a series of such
cases arrived for the
Court to consider. In the decisions the Court effectively rediscovered the
doctrine of ancillary restraints.
As Kauper notes:</p>
<blockquote>
... we began with <i>United States v Addyston Pipe and Steel Co </i>in 1898, we
are back to <i>Addyston Pipe </i>in 1987 and all the false starts in between
have been for nought.<a name="FootnoteB152" href="#Footnote152">[152]</a> </blockquote><p>The Court never expressly
stated it was relying on the doctrine. However, one can only really explain its
decisions using it. As Ross
has sardonically noted:</p>
<blockquote>
Indeed if the Supreme Court were in the business of providing legal doctrine,
its opinions in this area could justify a finding of
liability under section 5
of the Federal Trade Commission Act for unfair and deceptive acts or practices.
In cases involving horizontal
restraints, the Court frequently makes
contradictory statements, overrules precedent without acknowledging that it is
doing so, and
describes its mode of analysis in a way that appears to be at
variance with what it is really doing.<a name="FootnoteB153" href="#Footnote153">[153]</a> </blockquote><p>The first of
these cases was <i>Broadcast Music Inc v Columbia Broadcasting System
("BMI").<a name="FootnoteB154" href="#Footnote154">[154]</a>  </i>This involved copyrights. The relevant Copyright Act
prohibited musical performers from performing copyrighted songs without a
licence
from the copyright holder. It was impracticable and too expensive for
individual copyright holders to police their work and collect
royalties.
Accordingly associations of copyright holders formed. They did the policing and
licensing for their members. The two largest
were the American Society of
Composers, Authors and Publishers ("ASCAP") and BMI.</p>
<p>These organisations had huge libraries of copyrighted works. Each member
granted BMI or ASCAP a non-exclusive licence permitting them
to licence his or
her works to performers. BMI and ASCAP also policed their members' works by
listening for the broadcasting of works
in their libraries by anyone who had not
purchased a licence. They sold "blanket licences" which permitted the licensee
to perform
all of the works in BMI and ASCAP's libraries. Individual composers
could still issue individual licences. Licensees paid a charge
that varied with
their revenues. The licences had huge benefits. They saved millions of dollars
in transaction</p>
<p>costs. Rather than having thousands of separate negotiations and separate
licences for each work, licensees obtained the right to
thousands of works in
one hit. Despite this, the blanket licensing agreement appeared to fall within
<i>Socony-Vacuum's </i>definition of price fixing. It tampered with the market's
price structure. Furthermore, the agreement eliminated price competition
between
copyright holders. Once a licensee purchased the blanket license it could
perform any work in BMI and ASCAP's libraries at
no extra cost. One of ASCAP and
BMI's licensees was the CBS television network. CBS had purchased blanket
licences for many years.
It wanted a new type of license based on a per use
basis. ASCAP and BMI refused. CBS sued alleging the blanket licence was illegal
price fixing. CBS was in an awkward position. Although it claimed the blanket
licence was a price fix - it wanted another type of
licence. It did not want
individual bilateral licenses but rather bulk licences in a cheaper and
different form. If blanket licensing
was a per se price fix than so also was
CBS's preferred bulk licence which also involved copyright owners acting in
concert to license
works.</p>
<p>The Second Circuit Court of Appeals applied the per se rule relying on
<i>Socony-Vacuum. </i>However, a unanimous Supreme Court refused to apply the
per se rule. A majority of eight remanded the case for consideration under
the
rule of reason. Justice John Paul Stevens held that although the per se rule did
not apply, the blanket licence breached the
rule of reason.</p>
<p>For the majority Justice Byron White accepted that the blanket licence
"involves 'price fixing' in the literal sense: the composers
and publishing
houses have joined together into an organisation that sets its price for the
blanket licence that it sells."<a name="FootnoteB155" href="#Footnote155">[155]</a>  However White said this did not
necessarily imply that the blanket licence was per se illegal, since not all
literal price fixing
is price fixing for antitrust purposes. He wrote:</p>
<blockquote>
As generally used in the antitrust field, 'price fixing' is a shorthand way of
describing certain categories of business behaviour
to which the per se rule has
been held applicable. The Court of Appeal's literal approach does not alone
establish that this particular
practice is one of those types or that it is
'plainly anticompetitive' and very likely without 'redeeming virtue.'
Literalness is
overly simplistic and often over broad. When two partners set the
price of their goods or services they are literally 'price fixing',
but they are
not per se in violation of the Sherman Act. See <i>United State v Addyston Pipe
&amp; Steel Co </i>... Thus, it is necessary to characterise the challenged
conduct as falling within or without that category of behaviour to which
we
apply the label 'per se price fixing.' That will often, but not always, be a
simple matter.<a name="FootnoteB156" href="#Footnote156">[156]</a> </blockquote><p>Before deciding on the issue of
characterisation a court had to examine an agreement's purpose and effect. White
wrote:</p>
<blockquote>
... in characterising this conduct under the per se rule our inquiry must focus
on whether the effect and, because it tends to show
effect ... the purpose of
the practice is to threaten the proper operation of our predominately free
market economy - that is whether
the practice facially appears to be one that
would always or almost always tend to restrict competition and decrease output,
and
in what portion of the market, or instead one designed to 'increase economic
efficiency and render markets more rather than less
competitive'.<a name="FootnoteB157" href="#Footnote157">[157]</a> </blockquote><p>The Court held the blanket licence
was not a per se price fix. It was not akin to a naked cartel which deserves per
se condemnation.</p>
<blockquote>
The blanket licence, as we see it, is not a 'naked restraint of trade with no
purpose except stifling of competition' ... but rather
accompanies the
integration of sales, monitoring, and enforcement against unauthorised copyright
use.<a name="FootnoteB158" href="#Footnote158">[158]</a> </blockquote><p>Two other factors influenced the Court not to
apply the per se rule. First the blanket licence was "reasonably necessary" if
copyright
holders were to obtain the full benefits of the rights the Copyright
Act granted.<a name="FootnoteB159" href="#Footnote159">[159]</a> The difficulties of individual negotiation virtually
necessitated such a blanket licence agreement. It resulted in "a substantial
lowering of costs, which is of course potentially beneficial to both sellers and
buyers ..."<a name="FootnoteB160" href="#Footnote160">[160]</a> </p>
<p>Second the blanket licence created a new product:</p>
<blockquote>
Here the whole is truly greater than the sum of its parts; it is, to some
extent, a different product ... Thus, to the extent the
blanket licence 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
licence, 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.<a name="FootnoteB161" href="#Footnote161">[161]</a> </blockquote><p>The Court appeared to imply that
the blanket licence was akin to a joint venture. Thus, it fell for analysis
under the rule of reason.</p>
<blockquote>
Not all arrangements among actual or potential competitors that have an impact
on price are per se violations of the Sherman Act
or even unreasonable
restraints. ... Joint Ventures and other co-operative arrangements are not
usually unlawful, at least as price-fixing
schemes, where the agreement on price
is necessary to market the product at
all.<a name="FootnoteB162" href="#Footnote162">[162]</a> </blockquote><p>Accordingly, the majority remanded the case to
the Court of Appeals to assess under the rule of reason. In his dissenting
opinion,
Justice Stevens held the per se rule did not apply. However, he held
the record showed the blanket licence breached the rule of reason.
The Court of
Appeals upheld the blanket licence.<a name="FootnoteB163" href="#Footnote163">[163]</a>  Its main reason was that the
blanket licence had no anticompetitive purpose. Buyers dissatisfied with blanket
licences could obtain
individual licences directly.</p>
<p>What is important about <i>BMI </i>is that it shows the Court was prepared to
allow rivals to literally fix prices if the price restraint was a necessary part
of an
efficiency - enhancing endeavour and enabled the participants to market a
product that otherwise would not be available. In such
circumstances literal
price fixing would not be "price fixing" under the per se rule. Or as David
Marks and Jonathan Jacobsen, quipped:</p>
<blockquote>
Once an arrangement has been labelled 'price-fixing', it is indeed illegal per
se. But not all price-fixing arrangements are considered
'price
fixing'.<a name="FootnoteB164" href="#Footnote164">[164]</a> </blockquote><p>Unfortunately the <i>BMI </i>Court did not
give a doctrinal basis for its ruling. Some commentators suggested the case
endorsed a "quick look"<a name="FootnoteB165" href="#Footnote165">[165]</a>  or</p>
<p>"facial examination"<a name="FootnoteB166" href="#Footnote166">[166]</a>  technique for price restraints. According
to these techniques before a court decides whether to characterise an agreement
as price
fixing its conducts a preliminary inquiry (or quick look) to see
whether the per se rule should apply. This involves assessing its
purpose and
effect. If the agreement's probable tendency to restrict output outweighs its
procompetitive effects a court will characterise
it as per se illegal. A
defendant must identify "significant procompetitive effects achieved through the
integration of productive
capacity that are unattainable in the absence of
agreement" to avoid the per se label. Other commentators have suggested that
this
method only applies to price fixing only where a new product results from
the price restraints.<a name="FootnoteB167" href="#Footnote167">[167]</a> </p>
<p>However the doctrine of ancillary restraints best explains the Court's
reasoning. A practice which "facially appears to be one that
would always or
almost always tend to restrict competition and decrease output" and therefore
deserves per se treatment is a naked
restraint under Taft's analysis. Indeed,
the Court expressly held the blanket licence was not a "naked restraint of trade
with no
purpose except stifling of competition." A naked restraint can have no
other purpose of decreasing output and increasing price.</p>
<p>The category of agreement which falls for consideration under the rule of
reason fits within the definition of an ancillary restraint.
The price restraint
is part of an integration of the parties' economic activity, ie a joint venture
and appears capable of enhancing
the group's efficiency. It is certainly
procompetitive. Furthermore the Court quoted <i>Addyston Pipe. </i>The example
it gave of two partners setting the price of their goods and services does not
involve creating a new product. Yet the
court said it would not be a per se
violation of section 1. Indeed <i>Addyston Pipe </i>states why a partnership is
not:</p>
<blockquote>
... when two men become partners in a business, although their union might
reduce competition, this effect was only an incident to
the main purpose of a
union of their capital, enterprise and energy to carry on a successful business,
and one useful to the community.
Restrictions in the articles of partnership
upon the business activity of the members, with a view of securing their entire
effort
in the common enterprise, were of course, only ancillary to the main end
of the union and were to be encouraged.<a name="FootnoteB168" href="#Footnote168">[168]</a> </blockquote><p>Thus, the
ancillary restraints doctrine best explains <i>BMI </i>or is, at the very least,
consistent with it. Ross has gone further and said:</p>
<blockquote>
The majority [in <i>BMI] </i>simply restored the law of horizontal restraints to
the position enunciated by then Judge William Howard Taft in <i>...United.States
v Addyston Pipe &amp; Steel Co</i>: even agreements that 'literally' fix prices
are permissible if reasonably necessary to achieve the legitimate benefits of
some other
lawful integration between the
parties.<a name="FootnoteB169" href="#Footnote169">[169]</a> </blockquote><p>In any case <i>BMI </i>heralded a major
shift in the Supreme Court's treatment of price fixing. Nothing in
<i>Socony-Vacuum </i>suggested that not all literal price fixing was per se
illegal. The same year, the District of Columbia Court of Appeals rejected
a
price fixing challenge to an electric power pooling agreement in <i>Central Iowa
Power Co-operative v Federal Energy Regulatory Commission<a name="FootnoteB170" href="#Footnote170">[170]</a>  </i>The Court accepted certain
pricing provisions literally fixed prices. However, they were reasonably
necessary to the functioning of
the co-operative market. Relying on <i>BMI
</i>the Court upheld them.</p>
<p>Some commentators wondered whether the Supreme Court had eliminated the per
se rule for price fixing. <i>Catalano Inc v Target Sales<a name="FootnoteB171" href="#Footnote171">[171]</a> 
</i>showed this was not so. Here competing liquor wholesalers agreed to
eliminate short term trade credit for customers. The defendants
argued the
agreement should not be characterised as price fixing as it was not necessarily
anticompetitive. They claimed it removed
barriers to entry and enhanced price
visibility. The Ninth Circuit Court of Appeals accepted these arguments. It held
the agreement
was not on its face illegal.<a name="FootnoteB172" href="#Footnote172">[172]</a>  The agreement was thus
subject to the rule of reason. The Supreme Court unanimously reserved. Citing
<i>Socony-Vacuum </i>the Court found the agreement tampered with prices and was
thus per se illegal. The Court held the elimination of short term credit
to be
"tantamount to an agreement to eliminate discounts and thus [fell] squarely
within the traditional per se rule."<a name="FootnoteB173" href="#Footnote173">[173]</a>  As the wholesalers competed
in providing credit, the Court thought it was "realistic to view an agreement to
eliminate credit sales
as extinguishing one form of competition among the
sellers."<a name="FootnoteB174" href="#Footnote174">[174]</a>  Since there was "an obvious risk of anticompetitive
impact with no apparent potentially redeeming value"<a name="FootnoteB175" href="#Footnote175">[175]</a>  the Court
applied the per se rule.</p>
<p>The decision is unexceptionable. Trade credit is part of the price of goods.
An agreement to eliminate it reduces output and increases
price. It falls within
Taft's definition of a naked restraint. The per se rule is appropriate.</p>
<p>The Supreme Court's next price-fixing decision <i>Arizona v Maricopa County
Medical Society,<a name="FootnoteB176" href="#Footnote176">[176]</a>  </i>is more controversial.<a name="FootnoteB177" href="#Footnote177">[177]</a>  The case
involved a challenge by the State of Arizona against two incorporated
associations of doctors called Foundations for Medical
Care. The associations
consisted of 70 percent of doctors in Maricopa County, Arizona. The doctors
agreed on the maximum prices they
would charge for their services to patients
with health insurance. Several insurance companies agreed to pay the full costs
of these
services. They provided a list of participating doctors to
consumers.</p>
<p>The State of Arizona applied for summary judgment claiming the maximum price
fixing was per se illegal under section 1. A majority
of the Ninth Circuit Court
of Appeals refused to apply a per se rule.<a name="FootnoteB178" href="#Footnote178">[178]</a>  It argued</p>
<p>it knew too little about either the effect of the agreement or the health
care industry to apply the per se rule.</p>
<p>The defendants argued the agreement reduced prices to consumers by lowering
search costs. They also argued that the insurance companies
were acting in
consumers' best interests and that the medical profession should not be subject
to the per se rule. Furthermore participating
doctors were free to deal with
patients outside the agreement on any basis they wished. In short the defendants
argued that <i>BMI </i>controlled and the per se rule did not apply.</p>
<p>A majority (4 to 3) of the Supreme Court disagreed. It reserved and applied
the per se rule to condemn the agreement. Writing for
the majority Justice
Stevens held:</p>
<blockquote>
The respondents' principal argument is that the per se rule is inapplicable
because their agreements are alleged to have procompetitive
justifications. The
argument indicates a misunderstanding of the per se concept. The anticompetitive
potential inherent in all price
fixing agreements justifies their facial
invalidation even if procompetitive justifications are offered for
some.<a name="FootnoteB179" href="#Footnote179">[179]</a> </blockquote><p>He then offered reasons why maximum price
fixing is per se illegal. It substitutes the defendants' "perhaps erroneous
judgment" for
the market place. It "cripples the freedom of traders." Price
ceilings like price floors may have a restraining effect on competition.
Finally
maximum price fixing may be minimum price fixing in disguise.<a name="FootnoteB180" href="#Footnote180">[180]</a> 
(Most participating doctors charged the maximum price). He held "[O]ur decisions
foreclose the argument that the agreements at issue
escape per se condemnation
because they are horizontal and fix maximum prices."<a name="FootnoteB181" href="#Footnote181">[181]</a>  He summarily
rejected the argument that the medical profession was not subject to the per se
rule because of its unique characteristics.
He held this in essence led to a
standard based on reasonableness of the price fixed. This was something the
Court had consistently
rejected. He then distinguished <i>BMI </i>as the price
restraints here were not "reasonably necessary to the operation of the
scheme."</p>
<blockquote>
Nothing 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.<a name="FootnoteB182" href="#Footnote182">[182]</a> </blockquote><p>For good measure, unlike BMI, he
refused to characterise the arrangement as a joint venture because:</p>
<blockquote>
[t]he foundations are not analogous to partnerships or other joint 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. In such joint
ventures, the partnership is
regarded as a single firm competing with other
sellers in the market. The agreement under attack is an agreement among hundreds
of
competing doctors concerning the price at which each will offer his own
services to a substantial number of consumers.<br>
If a clinic offered complete medical coverage for a flat fee, the co-operating
doctors would have the type of partnership arrangements
in which a price fixing
agreement among the doctors would be perfectly proper. But the fee agreements
disclosed by the record in
this case are among independent competing
entrepreneurs. They fit squarely into the horizontal price-fixing
mold.<a name="FootnoteB183" href="#Footnote183">[183]</a> </blockquote><p>For the minority Justice Lewis Powell,
relying on <i>BMI, </i>argued the per se rule did not apply:</p>
<blockquote>
The Court acknowledges that the per se ban against price fixing is not be
invoked every time potential competitors literally fix
prices ... One also would
have expected it to acknowledge that per se characterisation is inappropriate if
the challenged agreement
or plan achieves for the public procompetitive benefits
that otherwise are not attainable. The Court does not do this. And neither
does
it provide alternative criteria by which the per se characterisation is to be
determined. It is content simply to brand this
type of plan as 'price fixing'
and describe the agreement in <i>Broadcast Music -</i> which also literally
involved the fixing of prices - as 'fundamentally
different'.<a name="FootnoteB184" href="#Footnote184">[184]</a> </blockquote><p>Justice Powell would only apply the per
se restraint to naked restraints because "departure from the rule of reason
standard must
be based upon demonstrable economic effect rather than ...upon
formalistic line drawing."<a name="FootnoteB185" href="#Footnote185">[185]</a>  To do this a court had to determine
whether the efficiencies an agreement creates "are substantial and reliable in
the absence of
such agreement."<a name="FootnoteB186" href="#Footnote186">[186]</a>  He argued the State of Arizona had
the burden of showing that the maximum price fixing agreement was "plainly
anticompetitive" and
"without a substantial and procompetitive efficiency
justification."<a name="FootnoteB187" href="#Footnote187">[187]</a> It had not and therefore per se condemnation was
inappropriate.</p>
<p>With respect, on its face, the majority opinion is somewhat
confusing.<a name="FootnoteB188" href="#Footnote188">[188]</a> The first part, with its emphasis on the usefulness and
certainty of the per se rule against price fixing, seems to support a return
to
the broad language of <i>Socony-Vacuum. </i>While acknowledging the usefulness
of per se rules the opinion does not offer a doctrinal basis on which to
distinguish between price
fixing which merits per se treatment and that which
does not. The second part of the opinion distinguishes BMI. Yet the language
of
the first part suggests that <i>BMI </i>was worthy of over-ruling. The reasons
the first part offers for per se price fixing are applicable to <i>BMI.
</i>However, the majority opinion shows no hint of overruling <i>BMI.</i></p>
<p>As commentators have noted the ancillary restraints doctrine is the best
method of explaining the case.<a name="FootnoteB189" href="#Footnote189">[189]</a>  Under the doctrine a restraint that
is wider than anything the procompetitive integration would justify is to that
extent naked.
Thus, an agreement that has restraints wider than necessary will
be a naked restraint and thus subject to per se condemnation. The
majority held
the defendants had failed to show the agreements' alleged efficiencies resulted
from the maximum price fees. It held
it was unnecessary for the doctors to set
the fees. Insurance companies or other independent bodies could do so. The same
insurance
plan could have resulted without competing doctors agreeing on fees.
Thus, a maximum fee schedule set by doctors was not truly ancillary
to the
insurance plan. It was wider than necessary. Accordingly it was a naked restraint. The per se rule applied.</p>
<p>The Supreme Court revisited alleged ancillary price fixing in <i>National
Collegiate Athletic Association v Board of Regents of the University of Oklahoma
</i>(NCAA).<a name="FootnoteB190" href="#Footnote190">[190]</a>  The NCAA is an organisation which regulates amateur
college sports including football in the United States. It regulates everything
from the rules of the game, recruiting student athletes, academic eligibility
and the number of games played and the televising of
these games. One of the
rules on televising games restricted the number of games on television, how many
times a school could appear
and how much compensation a school would receive for
a televised game. In short the rules forbade schools from conducting individual
negotiations with television networks and artificially limited the number of
games shown. Two schools which at the time were football
power-houses, the
Universities of Oklahoma and Georgia, sued. They alleged the television plan
amounted to price fixing. The NCAA
argued the per se rule did not apply and
attempted to justify the plan. It said the television restrictions minimised
loss of game
attendances. They also minimised loss of athletic plan revenues and
promoted a more balanced competition by spreading television
income among many
schools. The Supreme Court held that there were three issues before it. First
whether the per se rule or rule of
reason applied. Second whether the television
plan contained any anticompetitive potential and third whether the NCAA's
justifications
prevented a finding of illegality. For the majority Justice
Stevens held the plan was a horizontal restraint of trade. He defined
this as
"an agreement among competitors on the way in which they will compete with each
other."<a name="FootnoteB191" href="#Footnote191">[191]</a>  The Court held the plan artificially limited output and
precluded any price negotiation between broadcasters and schools. It also
held
the anticompetitive consequences of the television restrictions were "apparent"
as "individual competitors lost their freedom
to compete."<a name="FootnoteB192" href="#Footnote192">[192]</a> 
"[P]rice [was] higher and output lower than they would otherwise be, and [b]oth
[were] unresponsive to consumer preference."<a name="FootnoteB193" href="#Footnote193">[193]</a> In short the
television plan was a "naked restriction on price or output."<a name="FootnoteB194" href="#Footnote194">[194]</a> </p>
<p>However, the Court refused to apply the per se rule. It reasoned as
follows:</p>
<blockquote>
[W]e have decided that it would be inappropriate to apply a per se rule to this
case. This decision is not based on a lack of judicial
experience with this type
of arrangement, or the fact that the NCAA is organised as a non-profit entity,
or on our respect for the
NCAA's historic role in the preservation and
encouragement of intercollegiate amateur athletics. Rather, what 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.<a name="FootnoteB195" href="#Footnote195">[195]</a> </blockquote><p>The Court continued:</p>
<blockquote>
Our decision not to apply a per se rule to this case rests in large part on our
recognition that a certain degree of co-operation
is necessary if the type of
competition that petitioner and its member institutions seek to market is to be
preserved.<a name="FootnoteB196" href="#Footnote196">[196]</a> </blockquote><p>The Court rejected the NCAA's
justifications. It held the plan did not minimise game attendance issues as
games were shown live. This
drew spectators from their game seats into their
living rooms. The plan also distinguished <i>BMI </i>as the plan did not create
a new product. "[T]he same rights [were] still sold on an individual basis, only
in a non-competitive market."<a name="FootnoteB197" href="#Footnote197">[197]</a> </p>
<p>The Court also rejected the NCAA's argument that the plaintiff had not shown
that the NCAA had any market power. It held "absence
of proof of market power
does not justify a naked restriction on price or output."<a name="FootnoteB198" href="#Footnote198">[198]</a> Rather a
defendant had to show "some competitive justification even in the absence of a
detailed market analysis."<a name="FootnoteB199" href="#Footnote199">[199]</a>  As the NCAA had not, the Court struck
down the rules.</p>
<p>Justice Byron White dissented.<a name="FootnoteB200" href="#Footnote200">[200]</a>  He stressed the non-commercial
nature of the NCAA. He thought the price restraints were necessary to correct
the free market's inability
to provide high quality amateur athletics in
colleges. He argued that all the NCAA's rules, including its television plan,
worked
together to accomplish this goal. For primarily this reason but plus
others, he would have upheld the plan.<a name="FootnoteB201" href="#Footnote201">[201]</a> </p>
<p>Again with respect, Justice Stevens's opinion is somewhat confusing. First
his use of the word naked to describe the television plan
is unclear.<a name="FootnoteB202" href="#Footnote202">[202]</a> 
Prior to <i>NCAA </i>a naked restraint was automatically subject to the
per se rule. Yet the Court applied the rule of reason to a so-called naked
restraint.
The opinion has nothing in it which suggests the Court was abandoning
the per se / rule of reason dichotomy. Its choice of word is
unfortunate.</p>
<p>Furthermore, the Court's analysis under the rule of reason is
difficult.<a name="FootnoteB203" href="#Footnote203">[203]</a> When it rejected the NCAA's argument that the
television plan was a co- operative joint venture that increased the efficiency
of
its college football plan the Court held:</p>
<blockquote>
The District Court did not find that the NCCA's television plan produced any
procompetitive efficiencies which enhanced the competitiveness
of college
football television rights; to the contrary it concluded that NCAA football
could be marketed just as effectively without
the television plan. There is
therefore no predicate in the findings for petitioner's efficiency
justification. Indeed, petitioner's
argument is refuted by the District Court's
finding concerning price and output. If the NCAA's television plan produced
procompetitive
efficiencies, the plan would increase output and reduce the price
of televised games. The District Court's contrary findings accordingly
undermine
petitioner's position. In light of these findings, it cannot be said the 'the
agreement on price is necessary to market
the product at
all'.<a name="FootnoteB204" href="#Footnote204">[204]</a> </blockquote><p>As Professor Wesley Liebeler notes if there
was no predicate in the findings for petitioner's efficiency justifications then
the per
se rule should have applied. If a court finds no efficiency
justifications for an agreement that has price restraints, then it should
characterise it as price fixing.<a name="FootnoteB205" href="#Footnote205">[205]</a> </p>
<p>Again the ancillary restraint doctrine best explains the
decision.<a name="FootnoteB206" href="#Footnote206">[206]</a>  The above quotation simply holds that the television
plan was not ancillary to the NCAA's football programmes legitimate aspects.
While some restraints were necessary to produce an even football programme the
restraints in the television plan were wider than
necessary. Bork notes that had
the restraint been between members of one of the NCAA's conferences then the
restraint would have
had a clear relationship to competitive balance. The
restraint would have been ancillary to the joint venture of the conference.
He
writes:</p>
<blockquote>
The NCAA's limitations on telecasting, however, obviously did not protect
competitive balance across all of college football. The
rules did nothing to
bring Yale and Notre Dame to a condition of competitive equality. Nor did it
appear that restricting colleges'
rights to have their games televised enhanced
economic efficiency in any other way. Justice Stevens' opinion disposed of the
competitive
balance argument with the observation that 'the NCAA does not
complain that its television plan has equalised or is intended to equalise
competition with any one league. The plan is nation-wide in scope and there is
no single league in which all college football teams
compete'.<a name="FootnoteB207" href="#Footnote207">[207]</a> </blockquote><p>As the restraint was not ancillary under
Taft's doctrine it was naked and therefore deserving of per se condemnation.</p>
<p>As the above discussion shows the Supreme Court's price fixing decisions are
explicable under the ancillary restraints doctrine. The
Court has never
explicitly adopted the doctrine. However, a number of Circuit Court of Appeals
have interpreted the above cases (plus
a Supreme Court boycott case,
<i>Northwest Wholesale Stationers Inc v Pacific Stationery &amp; Printing
</i>Co)<a name="FootnoteB208" href="#Footnote208">[208]</a>  as effectively resurrecting the doctrine.<a name="FootnoteB209" href="#Footnote209">[209]</a>  A
relevant price fixing case is the Eleventh Circuit Court of Appeals' decision in
<i>National Bancard Corp (NaBanco) v VISA USA Inc.<a name="FootnoteB210" href="#Footnote210">[210]</a> </i></p>
<p>This involved a challenge to an interchange fee which members of the visa
credit card system operated. Visa ran a bank credit card
system. Such card
systems involve the following transactions.</p>
<blockquote>
1)	card holders who use the cards to purchase goods and services;<br>
2)	merchants who accept the cards in exchange for goods and services;<br>
3)	banks that issue cards to cardholders (card issuing banks) and<br>
4)	banks that contract with merchants to accept the credit cards (merchant
signing banks).</blockquote><p>Visa, as the central credit card organisation,
agreed with participating banks upon a uniform "interchange fee." A bank issuing
a
credit card to its customer would receive a uniform fee for transferring funds
on behalf of that customer to a bank that paid the
merchant who sold goods or
services to that customer. Thus, there was a set fee for a transaction between
the card issuing banks
and the merchant-signing banks. NaBanco was a third party
processor of credit card transactions. It acted as an agent for Visa members
in
processing merchant credit card transactions. It recruited new merchants on
behalf of merchant-signing banks. In return it kept
some or all of the merchant
discount revenue it retained from the amounts remitted to merchants.</p>
<p>NaBanco sued Visa alleging the set interchange fee was an illegal per se
price fixing agreement. The Court held it was not. It relied
on the ancillary
restraints doctrine. It called the agreement a joint venture. It concluded that
"this joint enterprise is not subject
to per se scrutiny because it is a
necessary element in the creating of efficiency enhancing integration."<a name="FootnoteB211" href="#Footnote211">[211]</a> 
Visa showed "characteristics of a joint venture" because it had partially
integrated some of its functions to produce a new product
(the Visa Card) which
none of its members could do individually. The interchange fee was a "necessary
term without which the system
would not function."<a name="FootnoteB212" href="#Footnote212">[212]</a> </p>
<p>The Court did not solely rely on the creation of a new product argument. The
fee was also necessary in reducing transaction costs
(ie it created productive
efficiencies). If each bank could establish its own transfer fee some banks
would find the transaction
costs of negotiating such fees too high and would
refuse to make or accept the transfers. That would make merchants unwilling to
accept cards other than those issued by their own banks. The Court showed it
fully accepted the ancillary restraints doctrine when
it held, quoting Bork:</p>
<blockquote>
[T]he [interchange fee] accompanies the co-ordination of other productive or
distributive efforts of the parties that is capable
of increasing the
integration's efficiency and no broader than required for that purpose ... [The
interchange fee] is reasonably
ancillary to [a] procompetitive efficiency -
creating endeavour and therefore not a naked restraint of
trade.<a name="FootnoteB213" href="#Footnote213">[213]</a> </blockquote><p>It further said of <i>BMI: "BMI's
</i>underlying teaching therefore appears to be that courts should look to
whether the restraint at issue potentially could create an
efficiency enhancing
integration to which the restraint is ancillary."<a name="FootnoteB214" href="#Footnote214">[214]</a>  The Court
concluded that as the interchange fee was not a naked restraint of competition
it was not per se illegal price fixing.</p>
<p>The above discussion shows that section 30 drives from United States law.
However, the issue remains whether section 30 accommodates
the doctrine of
ancillary restraints, viz: whether it captures literal price fixing which is
truly ancillary to a procompetitive
larger agreement. New Zealand courts have
been unwilling to incorporate United States antitrust doctrines such as the
essential facilities
doctrine into the Commerce Act<a name="FootnoteB215" href="#Footnote215">[215]</a> . However, an
examination of the purpose and structure of the Commerce Act shows how the
ancillary restraints doctrine applies under
it.</p>
<p></p>
<h1>
<a name="Heading255"></a><b>V. Does the Ancillary Restraints Doctrine Apply to
Section 30?</b></h1>
<p>New Zealand courts could apply the doctrine of ancillary restraints under
section 30 by using a purposive approach to interpretation.
The High Court has
stated that a purposive approach is necessary in interpreting the Commerce Act.
In <i>Union Shipping Ltd v Port Nelson Ltd </i>the High Court noted:</p>
<blockquote>
The [Commerce Act] is legislation of a type where the Court should not hesitate
to adopt necessary purposive approaches in line with
<i>Northland Milk Vendors
Association Inc v Northern Milk Ltd </i> <a href="/cgi-bin/LawCite?cit=%5b1988%5d%201%20NZLR%20530" title="View LawCiteRecord" class="autolink_findcases">[1988] 1 NZLR 530</a> paying due respect to
legislative policy.<a name="FootnoteB216" href="#Footnote216">[216]</a> </blockquote><p>In <i>Northland Milk Vendors
</i>the Court of Appeal noted:</p>
<blockquote>
The responsibility falling on the courts as a result is to work out a practical
interpretation appearing to accord best with the
general intention of Parliament
as embodied in the Act - that is to say the spirit of the Act ... Obviously
therefore a great deal
turns on the need for the courts to appreciate and give
weight to the underlying ideas and scheme of the
Act.<a name="FootnoteB217" href="#Footnote217">[217]</a> </blockquote><p>One of the ways of finding the purpose of an
act is its long title. The Commerce Act's long title is "An Act to promote
competition
in markets within New Zealand ..." As the Court of Appeal noted in
<i>Tru Tone Ltd v Festival Records Retail Marketing Ltd </i>the Commerce Act "is
based on the premise that society's resources are best allocated in a
competition market where rivalry between
firms ensures maximum efficiency in the
use of resources."<a name="FootnoteB218" href="#Footnote218">[218]</a> </p>
<p>The purpose of section 30 is to make price fixing per se illegal. The reason
for this is that cartel or naked price fixing serves
no useful procompetitive
end. It distorts the market, reduces output and raises prices. It can be very
harmful to society. It also
deters would be price fixers. It also saves time and
money. Virtually, (if not) all cartel or naked price fixing would be condemned
under full blown analysis under section 27 using the purpose limb. However, a
truly ancillary price restraint has none of these features.
Rather than reducing
output and increasing prices it increases output and decreases prices. In the
words of <i>Tru Tone </i>a truly ancillary price restraint "ensures maximum
efficiency in the use of resources." It frustrates the purpose of the Act to
interpret
it in such a way as to make truly ancillary price restraints per se
illegal.</p>
<p>Another way of discerning the purpose of an act is examine its scheme or
structure. Several provisions of the Commerce Act show a
purpose that Parliament
did not design the act so as to capture truly ancillary restraints. As mentioned
previously, in <i>Addyston Pipe </i>Judge Taft gave five examples of ancillary
restraints that were lawful at common law and presumably would be under the
Sherman Act.
These were:</p>
<blockquote>
[A]greements<br>
1)	by the seller of property or business not to compete with the buyer in such a
way as to derogate from the value of the property
or business sold;<br>
2)	by a retiring partner not to compete with the firm;<br>
3)	by a partner pending the partnership not to do anything to interfere, by
competition or otherwise, with the business of the firm;<br>
4)	by the buyer of property not to use the same in competition with the business
retained by the seller; and<br>
5)	by an assistant, servant or agent not to compete with his master or employer
after the expiration of his time of
service.<a name="FootnoteB219" href="#Footnote219">[219]</a> </blockquote><p>Section 44 of the Commerce Act contains
specific exemptions to Part II of the Act. It specifically exempts four of
Taft's examples.
The only one</p>
<p>it doesn't is number four. Interestingly Bork argues such a restraint should
not be lawful under the Sherman Act.<a name="FootnoteB220" href="#Footnote220">[220]</a> </p>
<p>Furthermore, section 33 provides section 30 does not apply to joint buying
groups who collectively acquire goods and jointly advertise
the price for the
supply of goods so acquired. The reason for this is explicable under the
ancillary restraints doctrine. If a joint
buying group is to work its members
need to agree on the acquisition price and the advertised resupply price. The
buying group serves
a legitimate procompetitive purpose. The price restraint is
ancillary to that purpose. It is no wider than necessary as members can
only
agree on the advertised resupply price. They cannot agree to resupply at a
certain price.</p>
<p>Similarly sections 31 provides section 30 does not apply to certain marketing
schemes of joint ventures. Again this is explicable
under the ancillary
restraints doctrine. Joint ventures are the archetypal situation where ancillary
restraints exist. By placing
limitations on the agreement of prices sections 31
ensures the price restraints are no wider than necessary. Thus the scheme and
structure of the Commerce Act show a purpose not to condemn ancillary restraints
per se. This should also be so under Section 30.</p>
<p>This is so, despite the use of the word "deemed." From <i>Ross v P J Heeninga
Ltd </i><a name="FootnoteB221" href="#Footnote221">[221]</a>  "deemed" in section 30 does not create a statutory
fiction. Rather it means "conclusively considered for the purposes of the
Act."<a name="FootnoteB222" href="#Footnote222">[222]</a> However, even with such a meaning courts still take account
of the legislative purpose of the Act. Haslam J did in <i>Ross.<a name="FootnoteB223" href="#Footnote223">[223]</a> 
</i>Bennion also notes: "In construing a deeming provision it is necessary to
bear in mind the legislative purpose."<a name="FootnoteB224" href="#Footnote224">[224]</a>  Thus, when the purpose of
the Commerce Act is not to condemn ancillary price restraints as per se illegal,
courts should not interpret
section 30 to capture them. As Areeda notes:</p>
<blockquote>
A sensible jurisprudence cannot frame abstract rules in English and then
instruct subordinates to apply them without regard to their
purpose or rationale
or impact upon the society.<a name="FootnoteB225" href="#Footnote225">[225]</a> </blockquote><p>A court interpreting
section 30 so as to capture ancillary price restraints would be ignoring the
purpose of why section 30 makes
price fixing per se illegal. It would have a
deleterious impact on society as it would result in the quick condemnation of
beneficial
agreements with a resulting loss of allocative and productive
efficiency. Thus, courts can use the ancillary restraints doctrine
in applying
section 30.</p>
<p>Some commentators have argued section 30 does not that degree of flexibility.
Others have criticised the doctrine itself. The next
part of this article
addresses those criticisms.</p>
<h1>
<a name="Heading277"></a><b>VI. Criticisms of The Ancillary Restraints
Doctrine</b></h1>
<p>One argument as to why courts should not apply the doctrine to section 30 is
the authorisation provisions of the Commerce Act.<a name="FootnoteB226" href="#Footnote226">[226]</a>  Under section 58
the Commerce Commission may grant an authorisation on the application of any
person who wishes to enter into or
give effect to a contract, arrangement or
understanding, or covenant, to which sections 27 and 28, would or might apply.
Although
section 58 does not refer to section 30 the Commission may authorise
section 30 conduct. Reference to section 30 is unnecessary.
Section 27 is the
source of the prohibition against price fixing and section 30 is only a deeming
provision. If a literal price fixing
agreement is truly ancillary to a
procompetitive outcome then the Commission can authorise it on a party's
application. In such a
case the benefits will outweigh any detriment. One can
contrast this with the United States law. Neither of the antitrust enforcement
agencies have any such power. It is up to the courts to deal with price fixing
agreements. Given such procompetitive agreements such
as in <i>BMI </i>and
<i>NaBanco </i>it is no wonder the United States courts have used the ancillary
restraints doctrine to bless them. To condemn them would be striking
down
extremely procompetitive agreements Congress did not intend the Sherman Act to
do that. In New Zealand the parties to the <i>BMI </i>and <i>NaBanco
</i>agreements could have applied to the Commission to authorise them. The
Commission undoubtedly would have. Given this authorisation
procedure New
Zealand courts should strictly interpret section 30. Any ancillarity arguments
should be for the Commission.</p>
<p>While the Commerce Act envisages an important role for the Commission, this
argument only goes so far. First in New Zealand parties
make very few
authorisation applications under section 27 and even less under section 30. The
market is not in favour of authorisation
applications. Accordingly, New Zealand
courts will have to face ancillary price fixing cases. In the case of true
ancillary price
restraints their procompetitive benefits will be plainly
visible. This was so in <i>BMI </i>and will also be so in restraints involved in
setting up a market. In such circumstances it will be extremely unlikely that an
enforcement
agency will bring action alleging a breach of section 30. Any
plaintiff will likely to a competitor. That is so in the United States.
According to a Georgetown Law School study, the most common relationship between
plaintiffs and defendants in price fixing cases
is that of
competitor.<a name="FootnoteB227" href="#Footnote227">[227]</a>  Courts should be suspicious of competitor price fixing
cases. If horizontal price fixing is truly at issue no competitor should
be
bringing an action. If firms are reducing output and raising prices a competitor
should be thrilled.<a name="FootnoteB228" href="#Footnote228">[228]</a>  The competitor is able to raise its prices or
sell an increased volume. Thus, a competitor case suggests what is really
happening
is that the price restraint is truly ancillary and is contributing to
productive efficiency. This disadvantages an inefficient competitor.</p>
<p>In any case, it is doubtful that a New Zealand court will condemn a truly
ancillary price restraint under section 30. Such restraints
can result in the
savings of millions of dollars as in <i>BMI </i>and <i>NaBanco. </i>They are
extremely procompetitive. Is a court really going to want to do that? It is
likely, it will try and bless such a restraint.
The doctrine of ancillary
restraints offers a way of doing so.</p>
<p>Any analysis under the doctrine is tightly focused. It is not a broad ranging
inquiry as under section 27. A court does not need to
assess market</p>
<p>power or market definition. With a truly naked restraint a court can condemn
it in the twinkle of an eye. The only real inquiry is
whether the price
restraint is ancillary to a legitimate transaction or venture. If so, the
question is whether it is wider than
necessary. Generally this will not be too
difficult or protracted an inquiry. However, in some circumstances the inquiry
will not
be easy.</p>
<p>This leads to the second criticism of the doctrine in that it is not a
panacea to the issue of characterisation.<a name="FootnoteB229" href="#Footnote229">[229]</a>  It does not lead to an
automatic answer when dealing with a price fixing agreement. This is undoubtedly
true. People can have legitimate
differences over whether a restraint is
ancillary or truly necessary. The <i>Chicago Board of Trade </i>case illustrates
this. Professor Peter Carstensen has argued that the call rule was an ancillary
restraint and thus legal.<a name="FootnoteB230" href="#Footnote230">[230]</a>  On the other hand Bork, Lawrence
Sullivan and Professors Ernest Gellhorn and William Kovacic argue it was a naked
restraint deserving
of per se condemnation.<a name="FootnoteB231" href="#Footnote231">[231]</a>  A similar debate has
arisen over <i>NaBanco. </i>Professors David Evans and Richard Schmalensee agree
with the Tenth Circuit Court of Appeals that the interchange fee was truly
ancillary
and necessary to the credit card system.<a name="FootnoteB232" href="#Footnote232">[232]</a>  On the other
hand Professor Dennis Carlton and Dr Alan Frankel argue that it was not
necessary and therefore a naked restraint.<a name="FootnoteB233" href="#Footnote233">[233]</a>  These disputes do not
mean the doctrine is of no use.</p>
<p>The doctrine is not meant to be a panacea. It is a method of analysing
horizontal restraints. It provides principles for distinguishing
between
procompetitive legal restraints and anticompetitive illegal ones. Its definition
of naked restraints is the best way of identifying
per se illegal restraints.
One can contrast it with Justice Brandeis's broad ranging inquiry in <i>Chicago
Board of Trade. </i>That inquiry is formless. Everything becomes relevant. The
doctrine of ancillary restraints provides a structure and rigour to the
analysis. Legal reasoning should be structured and rigorous. Without it the law
lacks certainty and falls into disrepute.</p>
<p>A related criticism from a Yale Law Journal Note is that the doctrine relies
too much on purpose.<a name="FootnoteB234" href="#Footnote234">[234]</a>  To know whether a restraint is ancillary one
has to know its purpose. The Note argues this investigation of purpose is not
part
of the per se rule. Rather it is part of the rule of reason. To investigate
purpose is inconsistent with the per se rule.<a name="FootnoteB235" href="#Footnote235">[235]</a>  This criticism is
puzzling. Courts have always used purpose and effect when deciding whether to
characterise an agreement as price
fixing and thus per se illegal. Certainly the
Supreme Court did in <i>Socony-Vacuum. </i>To suggest that purpose is not part
of per se analysis is contrary to what the courts have said and done. To
criticise the ancillary
restraints doctrine for an analysis of purpose is
invalid.</p>
<p>Leonard Vary provides another criticism of the doctrine by accusing it of
being the product of the Chicago School. He notes:</p>
<blockquote>
The emergence of the so-called Chicago School and the distinction that it drew
between naked and ancillary restraints has, at least
to a degree, moved the
thinking of the courts in the United States away from the view that effects of
price fixing between competitors
are always
pernicious.<a name="FootnoteB236" href="#Footnote236">[236]</a> </blockquote><p>Some people view the Chicago School as
an anathema.<a name="FootnoteB237" href="#Footnote237">[237]</a>  It is true that Bork has championed the
doctrine.<a name="FootnoteB238" href="#Footnote238">[238]</a>  However, it derives from <i>Addyston Pipe </i>and Taft's
reading of the then common law on restraint of trade. Given Taft decided
<i>Addyston Pipe </i>in 1898, 30 years before Bork was born, it is stretching
things to say that the Chicago School drew the distinction between naked
and
ancillary restraints. In any case the doctrine has no place in any ideological
dispute over competition law. As mentioned above,
"Taft's approach transcends
antitrust ideology."<a name="FootnoteB239" href="#Footnote239">[239]</a>  It offers a methodology for "distinguishing
between desirable and offensive horizontal agreements, regardless of one's views
on
the goals of antitrust."<a name="FootnoteB240" href="#Footnote240">[240]</a>  Commentators from all parts of the
competition law spectrum have praised the doctrine.<a name="FootnoteB241" href="#Footnote241">[241]</a> They all say
it is useful in distinguishing legal and illegal retrains. Vary's criticism is
invalid.</p>
<p>Vary's comments are in an article criticising Justice Lockhart's decision in
<i>Radio 2 UE Sydney Pty Ltd v Stereo FM Pty Ltd.<a name="FootnoteB242" href="#Footnote242">[242]</a>  </i>This article
turns to analyse that case using the doctrine.</p>
<h1>
<a name="Heading290"></a><b>VII. Analysis of Radio 2UE.</b></h1>
<p><i>Radio 2UE </i>involved section 45A of the Australian Trade Practices Act
1974 (equivalent to section 30). The case involved the radio industry -
shortly
after the introduction of FM stations. At that time FM stations faced fierce
opposition from the established AM stations.
Two Sydney FM stations produced a
combined rate card for advertisers on their two stations. The advertising rates
appearing on the
combined card were the sum of each station's individual rate.
Each station determined and charged its own rates independently. Each
station
could change its own rate at any time. Radio 2UE, a competing AM station sued
alleging the combined card was a breach of
section 45A.</p>
<p>At first instance Lockhart J held that the setting of the combined card did
not involve the fixing, controlling or maintaining of
prices. However in an
obiter comment on characterisation, his Honour, relying on United States
authorities, said:</p>
<blockquote>
The Court's task is to characterise the conduct before if in a given case. Care
must be taken in performing that task because by
its very nature, the violation
of s 45A is deemed, for the purpose of s 45 to substantially lessen competition
per se. Such a finding
may have far reaching consequences to the competitors
concerned.<br>
It is important to distinguish between arrangements (I use this expression for
convenience to encompass also contracts and undertakings)
which restrain price
competition and<br>
arrangements which merely incidentally affect it or have some connection with
it. Not every arrangement between competitors which
has some possible impact on
price is per se unlawful under the section.<br>
Nor in my view was s 45A introduced by Parliament to make arrangements unlawful
which affect price by improving competition. It is
fundamental to both s 45A and
45 that the relevant conduct, in purpose or effect, substantially lessens
competition or would likely
to do so. If competition is improved by an
arrangement I cannot perceive how it could be characterised as a price fixing
arrangement
within the ambit of those sections.<a name="FootnoteB243" href="#Footnote243">[243]</a> </blockquote><p>The
Full Federal Court upheld the decision but did not comment on Lockhart J's
obiter statement.<a name="FootnoteB244" href="#Footnote244">[244]</a> </p>
<p>Some commentators reacted in horror to this interpretation of s 45A.<a name="FootnoteB245" href="#Footnote245">[245]</a> 
They regarded it almost as eviscerating s 45A. They argued that it was
contrary to the Act's purpose of deeming price fixing to
be a substantial
lessening of competition. They argued that Lockhart J had introduced a rule of
reason analysis to price fixing.
However, Professor Robert Baxt praised Lockhart
J's analysis, saying it introduced "the correct antitrust principles from the
United
States."<a name="FootnoteB246" href="#Footnote246">[246]</a>  According to Baxt the decision stopped the fears
of Australian commentators who thought "that where per se offences were
introduced
in the legislation the courts would be likely to read these
provisions too rigidly, and not adopt what has been described in the
American
jurisprudence as a rule of reason approach."<a name="FootnoteB247" href="#Footnote247">[247]</a> </p>
<p>Viewed from the United States perspective one can criticise Lockhart J's
comments as they do not have a doctrinal basis from which
a court can determine
whether a price fixing arrangement improves competition or not. However, one can
find such a doctrinal basis
if one looks at his Honour's comments through the
lens of Professor Lawrence Sullivan's treatise.<a name="FootnoteB248" href="#Footnote248">[248]</a>  It appears the
treatise has influenced his Honour's views. One can compare the two.</p>
<p>His Honour said:</p>
<blockquote>
Nor in my view was section 45A introduced by Parliament to make arrangements
unlawful which affect price by improving
competition.<a name="FootnoteB249" href="#Footnote249">[249]</a> </blockquote><p>Sullivan when discussing price fixing
says:</p>
<p>The [Sherman] Act is not intended to make unlawful arrangements which affect
price by improving competition.<a name="FootnoteB250" href="#Footnote250">[250]</a> </p>
<p>Lockhart J also said:</p>
<blockquote>
If competition is improved by an arrangement I cannot perceive how it could be
characterised as a price fixing arrangement within
the ambit of those
sections.<a name="FootnoteB251" href="#Footnote251">[251]</a> </blockquote><p>The Sullivan treatise says:</p>
<blockquote>
If competition is improved by an arrangement, we do not characterise it as a
price fixing arrangement merely because it affects
price.<a name="FootnoteB252" href="#Footnote252">[252]</a> </blockquote><p>Lockhart J gives an example of an
arrangement which may literally fix prices but does not deserve per se
condemnation.</p>
<blockquote>
If competitors make an arrangement to establish a better market by, for example,
forming an organisation through which they operate
by exchanging information in
ways that make prices more competitive. I do not see how such an arrangement is,
per se, prohibited
by s 45A.<a name="FootnoteB253" href="#Footnote253">[253]</a> </blockquote><p>The Sullivan
treatise's example of an arrangement which may literally fix prices but does not
deserve per se condemnation is as follows:</p>
<blockquote>
Suppose for example that the purpose and affect of a particular arrangement is
to make a better market through the establishment
of an organised exchange where
all buyers and sellers operate, by standardising the products to facilitate
price comparisons, or
by exchanging information in ways facilitating
competition. These kinds of practices would affect price, but on our assumptions
they
would do so by making it more competitive; therefore, they ought not to be
treated as per se invalid.<a name="FootnoteB254" href="#Footnote254">[254]</a> </blockquote><p>If the Sullivan treatise
influenced Lockhart J, then one can turn to it to find out the full meaning of
his comments. The Sullivan
treatise does not advocate rule of reason treatment
of all price fixing agreements. It argues that "naked price restraints" deserve
per se condemnation.<a name="FootnoteB255" href="#Footnote255">[255]</a>  Those arrangements which affect price but do
not deserve per se condemnation are as follows:</p>
<p><i>(1)	Arrangements which make or improve a market.</i></p>
<p>Sullivan says "arrangements which may have the purpose or effect or making or
improving a market are not per se unlawful even though
they may affect
price."<a name="FootnoteB256" href="#Footnote256">[256]</a> </p>
<p><i>(2)	Restrictions resulting from partial integration. </i>Sullivan
notes:</p>
<blockquote>
An arrangement involving a partial integration of functions, which may achieve
significant economies of scale among competitors,
also may escape per se
treatment, even though it eliminates price competition between the firms that
participate in it. To qualify
for the application of the rule of reason, the
arrangement must have the following two characteristics: first, the elimination
of
price competition between the participating firms must result directly from
the partial integration of their functions; second this
elimination of price
competition must not appear to significantly reduce market-wide competition.
When these two conditions are met,
the arrangement is not characterised as a
price restraint...<a name="FootnoteB257" href="#Footnote257">[257]</a> </blockquote><p>The resemblance between
Sullivan's analysis and the doctrine of ancillary restraints is striking. This
is not surprising as Sullivan
calls Taft's <i>Addyston Pipe </i>opinion a "tour
de force."<a name="FootnoteB258" href="#Footnote258">[258]</a>  Essentially Sullivan argues that truly ancillary
restraints do not deserve per se condemnation. Naked restraints do. Cast in that
light Lockhart J's comments are explicable under the ancillary restraints
doctrine. One can reach the same result using the doctrine.
The two FM stations
had in effect formed a joint venture. This was a legitimate activity. The
combined rate card furthered that legitimate
activity and was necessary to it.
As the stations were free to change their individual rates whenever they wanted
the restraint was
no wider than necessary. Accordingly, an ancillary restraints
doctrine analysis would not condemn the combined rate card.</p>
<h1>
<a name="Heading318"></a><b>VIII. Conclusion</b></h1>
<p>The per se rule against naked cartel price fixing is of great utility.
However, it should not apply to literal price restraints which
are truly
ancillary to a procompetitive venture. Application of the ancillary restraints
doctrine ensures this will not happen. The
doctrine provides a structured
methodology for analysing price restraints. Such an approach is permissible
under section 30. The
doctrine may not turn the sea of doubt into a mill pond.
However, it makes it navigable. New Zealand courts should set such a course
when
interpreting section 30.</p>
<p></p>
<p></p>
<p><hr></p>
<p>*     LLM (Cantuar) Solicitor, Commerce Commission.</p>
<p>This is a revised version of a paper presented at the Eighth Annual Workshop
of the Competition Law and Policy Institute of New Zealand
on 1 August 1997 at
Christchurch. I thank Professor Peter Carstensen for his comments on previous
drafts of this article. The views
expressed are the author's alone. They should
not be taken or represented to be the views of the Commerce Commission.</p>
<p><a name="Footnote1" href="#FootnoteB1">[1]</a> 	P Areeda, 6 <i>Antitrust Law </i>(1986), para 1402(a).</p>
<p><a name="Footnote2" href="#FootnoteB2">[2]</a> 	Section 27 provides: - (1) No person shall enter into a contract or
arrangement, or arrive at an understanding, containing a provision
that has the
purpose, or has or is likely to have the effect, of substantially lessening
competition in a market. (2) No person shall
give effect to a provision of a
contract, arrangement or understanding that has the purpose, or has or is likely
to have the effect,
of substantially lessening competition in a market.</p>
<p><a name="Footnote3" href="#FootnoteB3">[3]</a> 	Bork, "The Rule of Reason and the Per Se Concept: Price Fixing and Market
Division. Part I" (1965) 71 Yale LI 775 at 775.</p>
<p><a name="Footnote4" href="#FootnoteB4">[4]</a> 	Section 30 provides: - (1) Without limiting the generality of section 27 of
this Act, a provision of a contract, arrangement or
understanding shall be
deemed for the purposes of that section to have the purpose, or to have or to be
likely to have the effect,
of substantially lessening competition in a market if
the provision has the purpose, or has or is likely to have the effect of fixing,
controlling, or maintaining or providing for the fixing, controlling, or
maintaining, of the price of goods or services, or any discount,
allowance,
rebate or credit in relation to goods or services...</p>
<p><a name="Footnote5" href="#FootnoteB5">[5]</a> 	See infra, n 73.</p>
<p><a name="Footnote6" href="#FootnoteB6">[6]</a> 	R H Bork, <i>The Antitrust Paradox A Policy At War With Itself" </i>(2nd
ed. 1993), p 264; Piraino, "Beyond Per Se, Rule of Reason or Merger Analysis: A
New Antitrust Standard for Joint Ventures"  <a href="/cgi-bin/LawCite?cit=%281991%29%2076%20Minn%20L%20Rev%201" title="View LawCiteRecord" class="autolink_findcases">(1991) 76 Minn L Rev 1</a>; M J
Trebilcock, <i>The Common Law of Restraint of Trade </i>(1986), pp 112-113; L A
Sullivan, <i>Antitrust </i>(1977), pp 206-210.</p>
<p><a name="Footnote7" href="#FootnoteB7">[7]</a> 	Sullivan, op cit n 6, at 205-206; R A Posner and F H Easterbrook,
<i>Antitrust </i>(2nd ed 1981).</p>
<p><a name="Footnote8" href="#FootnoteB8">[8]</a> 	Baxter, "Substitutes and Complements, and the Contours of the Firm" in F
Matthewson, M Trebilcock and M Walker (eds), <i>The Law and Economics of
Competition Policy </i>(1990), p 27.</p>
<p><a name="Footnote9" href="#FootnoteB9">[9]</a> 	85 F 271 (6th Cir 1898), aff'd, 175 United States 211 (1899).</p>
<p><a name="Footnote10" href="#FootnoteB10">[10]</a> 	<a href="http://www.austlii.edu.au/au/cases/cth/FCA/1982/206.html" title="View Case" class="autolink_findcases_inserted">[1982] FCA 206</a>;  <a href="/cgi-bin/LawCite?cit=%281982%29%2062%20FLR%20437" title="View LawCiteRecord" class="autolink_findcases">(1982) 62 FLR 437.</a></p>
<p><a name="Footnote11" href="#FootnoteB11">[11]</a> 	See: R Miller, <i>Annotated Trade Practices Act </i>(17th ed, 1996), p
142.</p>
<p><a name="Footnote12" href="#FootnoteB12">[12]</a> 	221 United States 1 (1911).</p>
<p><a name="Footnote13" href="#FootnoteB13">[13]</a> 	See Allison, "Ambiguous Price Fixing and the Sherman Act: Simplistic
Labels or Unavoidable Analysis"  <a href="/cgi-bin/LawCite?cit=%281979%29%2016%20Hous%20LR%20761" title="View LawCiteRecord" class="autolink_findcases">(1979)  16 Houston L Rev, 761</a> at 767.</p>
<p><a name="Footnote14" href="#FootnoteB14">[14]</a> 	Sullivan, op cit n 6, at 195; see also <i>United States v United States
Gypsum Co </i>438 United States 422 (1978); <i>Broadcast Music Inc.  v Columbia
Broadcasting Systems, </i>441 United States 1 (1979).</p>
<p><a name="Footnote15" href="#FootnoteB15">[15]</a> 	Areeda, "The Changing Contours of the Rule of Reason"  <a href="/cgi-bin/LawCite?cit=%281988%29%2054%20Antitrust%20LJ%201" title="View LawCiteRecord" class="autolink_findcases">(1988) 54 Antitrust
LJ 1</a>, at 28.</p>
<p><a name="Footnote16" href="#FootnoteB16">[16]</a> 	Sullivan, op cit n 6, at 194.</p>
<p><a name="Footnote17" href="#FootnoteB17">[17]</a> 	Kauper, "The Treatment of Cartels Under the Antitrust Laws of the United
States" in C- K. Wang, C-J. Cheng &amp; L. Lui (eds) <i>International
Harmonisation of Competition Laws </i>(1995), p75 at 78.</p>
<p><a name="Footnote18" href="#FootnoteB18">[18]</a><i> Fisher &amp; Paykel Ltd v Commerce Commission </i> <a href="/cgi-bin/LawCite?cit=%5b1990%5d%202%20NZLR%20731" title="View LawCiteRecord" class="autolink_findcases">[1990] 2 NZLR 731</a> at
741. The High Court quoted <i>White Motor Company v US </i><a href="http://www.worldlii.org/us/cases/federal/USSC/1963/36.html" title="View Case" class="autolink_findcases_inserted">[1963] USSC 36</a>;  <a href="/cgi-bin/LawCite?cit=372%20US%20253" title="View LawCiteRecord" class="autolink_findcases">372 US 253</a> (1953) and
P Areeda, <i>Antitrust Analysis </i>(2nd ed. 1974), p 637. However, one can
trace the doctrine back to <i>Addyston Pipe </i>op cit n 9. Professor Donald
Turner first gave it academic prominence. See Turner, "The Validity of Tying
Arrangements Under the Antitrust
Laws"  <a href="/cgi-bin/LawCite?cit=%281958%29%2072%20Harv%20L%20Rev%2050" title="View LawCiteRecord" class="autolink_findcases">(1958) 72 Harv L Rev 50</a>, at 59, 64.
Turner, "The Definition of Agreement Under the Sherman Act: Conscious
Parallelism and Refusals to Deal"  <a href="/cgi-bin/LawCite?cit=%281962%29%2075%20Harv%20L%20Rev%20655" title="View LawCiteRecord" class="autolink_findcases">(1962) 75 Harv L Rev 655</a>, at 699; see also,
Note, "Restricted Channels of Distributions Under the Sherman Act"  <a href="/cgi-bin/LawCite?cit=%281962%29%2075%20Harv%20L%20Rev%20795" title="View LawCiteRecord" class="autolink_findcases">(1962) 75
Harv L Rev 795</a>, at 823 - 832.</p>
<p><a name="Footnote19" href="#FootnoteB19">[19]</a> 	Arthur, "Farewell to the Sea of Doubt: Jettisoning the Constitutional
Sherman Act"  <a href="/cgi-bin/LawCite?cit=%281986%29%2074%20CLR%20263" title="View LawCiteRecord" class="autolink_findcases">(1986) 74 Cal L Rev 263</a>, at 343; Roberts, "The Evolving Confusion
of Professional Sports Antitrust, The Rule of Reason and the Doctrine of
Ancillary Restraints"
(1988) 61</p>
<p>Sou Cal L Rev 942, at 966.</p>
<p><a name="Footnote20" href="#FootnoteB20">[20]</a> 	Allison, op cit n 13, at 769 - 770.</p>
<p><a name="Footnote21" href="#FootnoteB21">[21]</a><i> Fisher &amp; Paykel, </i>op cit n 18, at 740.</p>
<p><a name="Footnote22" href="#FootnoteB22">[22]</a><i> US v Socony - Vacuum Oil Co </i><a href="http://www.worldlii.org/us/cases/federal/USSC/1940/112.html" title="View Case" class="autolink_findcases_inserted">[1940] USSC 112</a>;  <a href="/cgi-bin/LawCite?cit=310%20US%20150" title="View LawCiteRecord" class="autolink_findcases">310 US 150</a> (1940).</p>
<p><a name="Footnote23" href="#FootnoteB23">[23]</a> 	P Areeda &amp; D F Turner, <i>2 Antitrust Law </i>(1978), p 280.</p>
<p><a name="Footnote24" href="#FootnoteB24">[24]</a> 	Williamson, "Economies as an Antitrust Defense: The Welfare Trade-off
 <a href="/cgi-bin/LawCite?cit=%281968%29%2058%20Am%20Econ%20Rev%2018" title="View LawCiteRecord" class="autolink_findcases">(1968) 58 Am Econ Rev 18</a>; Williamson, "Allocative Efficiency and the Limits of
Antitrust"  <a href="/cgi-bin/LawCite?cit=%281969%29%2059%20Am%20Econ%20Rev%20105" title="View LawCiteRecord" class="autolink_findcases">(1969) 59 Am Econ Rev 105.</a></p>
<p><a name="Footnote25" href="#FootnoteB25">[25]</a> 	Trebilcock, op cit n 6, at 295.</p>
<p><a name="Footnote26" href="#FootnoteB26">[26]</a> 	S Ross, <i>Principles of Antitrust Law </i>(1993), p 117; F M Scherer
&amp; D Ross, <i>Industrial Market Structure and Economic Performance </i>(3rd
ed, 1990), pp 239-244.</p>
<p><a name="Footnote27" href="#FootnoteB27">[27]</a> 	Bork, op cit n 6, at 263.</p>
<p><a name="Footnote28" href="#FootnoteB28">[28]</a> 	R A Posner, <i>Antitrust Law: An Economic Perspective </i>(1976), 39.</p>
<p><a name="Footnote29" href="#FootnoteB29">[29]</a> 	See Bittlingmayer, "Decreasing Average Cost and Competition: A New Look at
the Addyston Pipe Case"  <a href="/cgi-bin/LawCite?cit=%281982%29%2025%20JLE%20201" title="View LawCiteRecord" class="autolink_findcases">(1982) 25 JL &amp; Econ 201</a>; Telser, "Cooperation,
Competition, and Efficiency"  <a href="/cgi-bin/LawCite?cit=%281985%29%2028%20JLE%20271" title="View LawCiteRecord" class="autolink_findcases">(1985) 28 JL &amp; Econ 271</a>; Leslie, "Achieving
Efficiency Through Collusion: A Market Failure Defense to Horizontal
Price-Fixing"  <a href="/cgi-bin/LawCite?cit=%281993%29%2081%20CLR%20243" title="View LawCiteRecord" class="autolink_findcases">(1993) 81 Cal L Rev 243</a>; Note, "Fixing the Price Fixing Confusion:
A Rule of Reason Approach"  <a href="/cgi-bin/LawCite?cit=%281983%29%2092%20Yale%20LJ%20706" title="View LawCiteRecord" class="autolink_findcases">(1983) 92 Yale LJ 706</a>; D Armentano <i>"Antitrust
Policy: The Case For Repeal" </i>(1986).</p>
<p><a name="Footnote30" href="#FootnoteB30">[30]</a>       Sullivan, op cit n 6, 163; P Areeda &amp; L Kaplow, <i>Antitrust
Analysis </i>(4th ed 1988), p 189; G Stigler, "A Theory of Oligopoly"  <a href="/cgi-bin/LawCite?cit=%281964%29%2072%20J%20Pol%20Econ%2044" title="View LawCiteRecord" class="autolink_findcases">(1964) 72 J Pol Econ 44</a>; H Hovenkamp,
<i>Economics</i> <i>and Frederal Antitrust Law </i>(1985), pp 83-91. 31      E Gelhorn &amp; W
E Kovacic, <i>Antitrust Law and Economics in a Nutshell </i>(4th ed 1994), p
161. 32      Areeda and Kaplow, op  cit n 30, at 86;  Posner &amp; Easterbrook,
op cit n 28, at 101; Sullivan op
 cit n 6, at 203-204; Leslie, op cit n 29.</p>
<p><a name="Footnote33" href="#FootnoteB33">[33]</a>      Hovenkamp, op cit n 30, at 86. 34    <a href="http://www.worldlii.org/us/cases/federal/USSC/1988/75.html" title="View Case" class="autolink_findcases_inserted">[1988] USSC 75</a>;  <a href="/cgi-bin/LawCite?cit=485%20US%20717" title="View LawCiteRecord" class="autolink_findcases">485 US 717</a>, 723 (1988).</p>
<p><a name="Footnote35" href="#FootnoteB35">[35]</a>      A Chandler, <i>The Visible Hand: The Managerial Revolution in American
Business </i>(1977), p 321.</p>
<p><a name="Footnote36" href="#FootnoteB36">[36]</a>     Trebilcock, op cit n 6, at 299.</p>
<p><a name="Footnote37" href="#FootnoteB37">[37]</a>     Areeda &amp; Kaplow, op cit n 30, at 189.</p>
<p><a name="Footnote38" href="#FootnoteB38">[38]</a>     Kauper, op  cit n 17, at 78.</p>
<p><a name="Footnote39" href="#FootnoteB39">[39]</a>     Ayres, "How Cartels Punish: A Structural Theory of Self - Enforcing
Collusion" (1987) 87</p>
<p>         Colum L Rev 295.</p>
<p><a name="Footnote40" href="#FootnoteB40">[40]</a> 	D W Carlton &amp; J M Perloff, <i>Modern Industrial Organisation 
</i>(1990), pp 216-223 .</p>
<p><a name="Footnote41" href="#FootnoteB41">[41]</a> 	Greer, "Price and Production Behaviour: Cartel Practice and Policy" in D F
Greer (ed) <i>Industrial Organisation and Public Policy </i>(3rd ed, 1980), p
389.</p>
<p><a name="Footnote42" href="#FootnoteB42">[42]</a> 	W F Shepherd, <i>The Economics of Industrial Organisation </i>(2nd ed,
1985), p 245.</p>
<p><a name="Footnote43" href="#FootnoteB43">[43]</a> 	See op cit n 15.</p>
<p><a name="Footnote44" href="#FootnoteB44">[44]</a> 	Hovenkamp, op cit n 30, at 91; Waldman, "The Inefficiencies of
"Unsuccessful" Price Fixing Agreements"  <a href="/cgi-bin/LawCite?cit=%281988%29%2033%20Antitrust%20Bull%2067" title="View LawCiteRecord" class="autolink_findcases">(1988) 33 Antitrust Bull 67.</a></p>
<p><a name="Footnote45" href="#FootnoteB45">[45]</a> 	Kauper, op cit n 17, at 78.</p>
<p><a name="Footnote46" href="#FootnoteB46">[46]</a> 	Leslie, op cit n 29.</p>
<p><a name="Footnote47" href="#FootnoteB47">[47]</a> 	Krattenmaker, "Per Se Violations in Antitrust Law: Confusing Offenses with
Defenses" (1988) 77 Geo LJ 165, at 173.</p>
<p><a name="Footnote48" href="#FootnoteB48">[48]</a> 	Note, "Antitrust Standing Antitrust Injury, and the Per Se Standard"
 <a href="/cgi-bin/LawCite?cit=%281984%29%2093%20Yale%20LJ%201309" title="View LawCiteRecord" class="autolink_findcases">(1984) 93 Yale LJ 1309</a>; Comment, "Segregation of Antitrust Damages: An Excessive
Burden on Private Plaintiffs"  <a href="/cgi-bin/LawCite?cit=%281983%29%2072%20CLR%20403" title="View LawCiteRecord" class="autolink_findcases">(1983), 72 Cal L Rev 403</a>; ABA Monograph,
<i>Proving Antitrust Damages</i></p>
<p>(1996).</p>
<p><a name="Footnote49" href="#FootnoteB49">[49]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1927/62.html" title="View Case" class="autolink_findcases_inserted">[1927] USSC 62</a>;  <a href="/cgi-bin/LawCite?cit=273%20US%20392" title="View LawCiteRecord" class="autolink_findcases">273 US 392.</a></p>
<p><a name="Footnote50" href="#FootnoteB50">[50]</a> 	Ibid at 397 - 398.</p>
<p><a name="Footnote51" href="#FootnoteB51">[51]</a> 	Ibid at 179.</p>
<p><a name="Footnote52" href="#FootnoteB52">[52]</a> 	Bork, op cit n 6, at 126.</p>
<p><a name="Footnote53" href="#FootnoteB53">[53]</a> 	Areeda &amp; Kaplow op cit n 30, at 190 - 192; Sullivan, op cit n 6, at
203; Posner &amp; Easterbrook, op cit n 28, at 101-102.</p>
<p><a name="Footnote54" href="#FootnoteB54">[54]</a><i> Fishman v Wirtz </i>807 F 2d 520 (7th Cir 1986).</p>
<p><a name="Footnote55" href="#FootnoteB55">[55]</a> 	See Trebilcock, op cit n 6, at 275 - 305</p>
<p><a name="Footnote56" href="#FootnoteB56">[56]</a> 	J Schumpeter, <i>Capitalism, Socialism and Democracy  </i>(1942), p
82.</p>
<p><a name="Footnote57" href="#FootnoteB57">[57]</a> 	Areeda &amp; Kaplow, op cit n 30, at 190.</p>
<p><a name="Footnote58" href="#FootnoteB58">[58]</a> 	See authorities cited at n 32.</p>
<p><a name="Footnote59" href="#FootnoteB59">[59]</a> 	Sullivan, op cit n 6, at 203.</p>
<p><a name="Footnote60" href="#FootnoteB60">[60]</a> 	Trebilcock, supra n 6, 301.</p>
<p><a name="Footnote61" href="#FootnoteB61">[61]</a> 	Areeda &amp; Kaplow, op cit n 30, at 191.</p>
<p><a name="Footnote62" href="#FootnoteB62">[62]</a> 	Kauper, op cit n 17, at 17; Areeda &amp; Kaplow, op cit n 30, at 194.</p>
<p><a name="Footnote63" href="#FootnoteB63">[63]</a> 	Posner &amp; Easterbrook, op cit n 28, at 115</p>
<p><a name="Footnote64" href="#FootnoteB64">[64]</a> 	Ibid at 115 - 116.</p>
<p><a name="Footnote65" href="#FootnoteB65">[65]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1978/67.html" title="View Case" class="autolink_findcases_inserted">[1978] USSC 67</a>;  <a href="/cgi-bin/LawCite?cit=435%20US%20679" title="View LawCiteRecord" class="autolink_findcases">435 US 679</a> (1978).</p>
<p><a name="Footnote66" href="#FootnoteB66">[66]</a> 	Ibid at 695.</p>
<p><a name="Footnote67" href="#FootnoteB67">[67]</a> 	Ibid.</p>
<p><a name="Footnote68" href="#FootnoteB68">[68]</a>       Ibid.</p>
<p><a name="Footnote69" href="#FootnoteB69">[69]</a> 	Kauper, "Price Fixing : New Approaches to the Old Problem"  <a href="/cgi-bin/LawCite?cit=%281977%29%2046%20Antitrust%20LJ%20435" title="View LawCiteRecord" class="autolink_findcases">(1977) 46
Antitrust LJ 435</a>, at 437.</p>
<p><a name="Footnote70" href="#FootnoteB70">[70]</a> 	Note, op cit n 29, at 709 - 710; Bork, op cit n 6, at 269.</p>
<p><a name="Footnote71" href="#FootnoteB71">[71]</a> 	Kauper, op cit n 17, at 78.</p>
<p><a name="Footnote72" href="#FootnoteB72">[72]</a> 	See Allison, op cit n 13, Note, op cit n 29; Wirtz, "Rethinking Price
Fixing" (1987) 20 Ind L Rev 591; Marks &amp; Jacobson, "Price
Fixing: an
Overview"  <a href="/cgi-bin/LawCite?cit=%281985%29%2030%20Antitrust%20Bull%20199" title="View LawCiteRecord" class="autolink_findcases">(1985) 30 Antitrust Bull 199</a>; Comment, "The Per Se Illegality of Price
Fixing - Sans Power, Purpose or Effect"  <a href="/cgi-bin/LawCite?cit=%281952%29%2019%20U%20Chi%20L%20Rev%20837" title="View LawCiteRecord" class="autolink_findcases">(1952) 19 U Chi L Rev 837.</a></p>
<p><a name="Footnote73" href="#FootnoteB73">[73]</a> 	15 U.S.C.S. (1982).</p>
<p><a name="Footnote74" href="#FootnoteB74">[74]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1897/80.html" title="View Case" class="autolink_findcases_inserted">[1897] USSC 80</a>;  <a href="/cgi-bin/LawCite?cit=166%20US%20290" title="View LawCiteRecord" class="autolink_findcases">166 US 290</a> (1897).</p>
<p><a name="Footnote75" href="#FootnoteB75">[75]</a> 	24 Stat. 379 (1887).</p>
<p><a name="Footnote76" href="#FootnoteB76">[76]</a> 	Op cit n 74, at 328.</p>
<p><a name="Footnote77" href="#FootnoteB77">[77]</a> 	Ibid at 352.</p>
<p><a name="Footnote78" href="#FootnoteB78">[78]</a> 	Ibid.</p>
<p><a name="Footnote79" href="#FootnoteB79">[79]</a> 	Ross, op cit n 26, at 119; Sullivan op cit n 6, at 168.</p>
<p><a name="Footnote80" href="#FootnoteB80">[80]</a> 	Bork, op cit n 3, at 786 - 790.</p>
<p><a name="Footnote81" href="#FootnoteB81">[81]</a> 	Op  cit n 14, at 331-332.</p>
<p><a name="Footnote82" href="#FootnoteB82">[82]</a> 	Bork, op cit n 3, at 190.</p>
<p><a name="Footnote83" href="#FootnoteB83">[83]</a> 	Op  cit n l4, at 342.</p>
<p><a name="Footnote84" href="#FootnoteB84">[84]</a> 	Ibid.</p>
<p><a name="Footnote85" href="#FootnoteB85">[85]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1884/189.html" title="View Case" class="autolink_findcases_inserted">[1884] USSC 189</a>;  <a href="/cgi-bin/LawCite?cit=111%20US%20505" title="View LawCiteRecord" class="autolink_findcases">111 US 505</a> (1898).</p>
<p><a name="Footnote86" href="#FootnoteB86">[86]</a> 	 <a href="/cgi-bin/LawCite?cit=111%20US%20518" title="View LawCiteRecord" class="autolink_findcases">111 US 518</a> (1898).</p>
<p><a name="Footnote81" href="#FootnoteB81">[81]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1884/190.html" title="View Case" class="autolink_findcases_inserted">[1884] USSC 190</a>;  <a href="/cgi-bin/LawCite?cit=111%20US%20604" title="View LawCiteRecord" class="autolink_findcases">111 U.S 604</a> (1898).</p>
<p><a name="Footnote88" href="#FootnoteB88">[88]</a> 	Op  cit n 85, at 561 - 568.</p>
<p><a name="Footnote89" href="#FootnoteB89">[89]</a> 	Ibid at 568.</p>
<p><a name="Footnote90" href="#FootnoteB90">[90]</a> 	Ibid.</p>
<p><a name="Footnote91" href="#FootnoteB91">[91]</a> 	Ross, op cit n 26, at 121.</p>
<p><a name="Footnote92" href="#FootnoteB92">[92]</a> 	Sullivan, op cit n 6, at 110.</p>
<p><a name="Footnote93" href="#FootnoteB93">[93]</a> 	85 F. 271 (6th Cir. 1898) <i>aff'd </i><a href="http://www.worldlii.org/us/cases/federal/USSC/1899/169.html" title="View Case" class="autolink_findcases_inserted">[1899] USSC 169</a>;  <a href="/cgi-bin/LawCite?cit=175%20US%20211" title="View LawCiteRecord" class="autolink_findcases">175 U.S. 211</a> (1899).</p>
<p><a name="Footnote94" href="#FootnoteB94">[94]</a> 	Taft was later a Yale Law School Professor, U.S. Solicitor General,
President and Chief Justice of the Supreme Court.</p>
<p><a name="Footnote95" href="#FootnoteB95">[95]</a> 	It is doubtful Taft's view of the then common law on restraint of trade
was accurate. See Bork, op  cit n 3, at 797. For a contrary
view see Arthur, op
cit n 19, at 280 - 284.</p>
<p><a name="Footnote96" href="#FootnoteB96">[96]</a> 	Op cit n 93, 282-283.</p>
<p><a name="Footnote97" href="#FootnoteB97">[97]</a> 	Ibid at 283 - 284.</p>
<p><a name="Footnote98" href="#FootnoteB98">[98]</a> 	Ibid at 284.</p>
<p><a name="Footnote99" href="#FootnoteB99">[99]</a> 	Ibid at 283.</p>
<p><a name="Footnote100" href="#FootnoteB100">[100]</a> 	Ibid at 282.</p>
<p><a name="Footnote101" href="#FootnoteB101">[101]</a> 	Ibid.</p>
<p><a name="Footnote102" href="#FootnoteB102">[102]</a> 	Ibid at 281.</p>
<p><a name="Footnote103" href="#FootnoteB103">[103]</a> 	Ibid at 282.</p>
<p><a name="Footnote104" href="#FootnoteB104">[104]</a> 	Kauper, "The Sullivan Approach to Horizontal Restraints"   <a href="/cgi-bin/LawCite?cit=%281981%29%2015%20CLR%20893" title="View LawCiteRecord" class="autolink_findcases">(1981) 15 Cal L
Rev 893.</a></p>
<p><a name="Footnote105" href="#FootnoteB105">[105]</a> 	E T Sullivan &amp; J Harris, <i>Understanding Antitrust and its Economic
Implications </i>(2nd ed, 1994).</p>
<p><a name="Footnote106" href="#FootnoteB106">[106]</a> 	Piraino, op cit n 6, at 5-6, 54-56.</p>
<p><a name="Footnote107" href="#FootnoteB107">[107]</a> 	Sullivan, op cit n 6, at 171.</p>
<p><a name="Footnote108" href="#FootnoteB108">[108]</a> 	Ibid.</p>
<p><a name="Footnote109" href="#FootnoteB109">[109]</a> 	Bork, op  cit n 6, at 26.</p>
<p><a name="Footnote110" href="#FootnoteB110">[110]</a> 	Ross, op cit n 26, at 121.</p>
<p><a name="Footnote111" href="#FootnoteB111">[111]</a> 	Ibid at 211.</p>
<p><a name="Footnote112" href="#FootnoteB112">[112]</a> 	See infra, n 153 - 158.</p>
<p><a name="Footnote113" href="#FootnoteB113">[113]</a> 	See infra, n 116 - 214.</p>
<p><a name="Footnote114" href="#FootnoteB114">[114]</a> 	See infra, n 216 - 217.</p>
<p><a name="Footnote115" href="#FootnoteB115">[115]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1910/112.html" title="View Case" class="autolink_findcases_inserted">[1910] USSC 112</a>;  <a href="/cgi-bin/LawCite?cit=221%20US%201" title="View LawCiteRecord" class="autolink_findcases">221 US 1</a> (1911).</p>
<p><a name="Footnote116" href="#FootnoteB116">[116]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1910/113.html" title="View Case" class="autolink_findcases_inserted">[1910] USSC 113</a>;  <a href="/cgi-bin/LawCite?cit=221%20US%20106" title="View LawCiteRecord" class="autolink_findcases">221 US 106</a> (1911).</p>
<p><a name="Footnote117" href="#FootnoteB117">[117]</a> 	See Allison, op cit n 13, at 767-777.</p>
<p><a name="Footnote118" href="#FootnoteB118">[118]</a> 	Op  cit n 115, at 58.</p>
<p><a name="Footnote119" href="#FootnoteB119">[119]</a> 	Ibid at 60.</p>
<p><a name="Footnote120" href="#FootnoteB120">[120]</a> 	Op  cit n 116, at 106.</p>
<p><a name="Footnote121" href="#FootnoteB121">[121]</a> 	Bork, op cit n 3, at 805; Ross, op cit n 26, at 126.</p>
<p><a name="Footnote122" href="#FootnoteB122">[122]</a> 	Sullivan, op cit n 6, at 174; Allison, op cit n 13, at 767; Kauper, op
cit n 17, at 76.</p>
<p><a name="Footnote123" href="#FootnoteB123">[123]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1918/41.html" title="View Case" class="autolink_findcases_inserted">[1918] USSC 41</a>;  <a href="/cgi-bin/LawCite?cit=246%20US%20231" title="View LawCiteRecord" class="autolink_findcases">246 US 231</a> (1918).</p>
<p><a name="Footnote124" href="#FootnoteB124">[124]</a> 	Ibid at 238.</p>
<p><a name="Footnote125" href="#FootnoteB125">[125]</a> 	Ibid at 240-241.</p>
<p><a name="Footnote126" href="#FootnoteB126">[126]</a> 	Ibid at 140.</p>
<p><a name="Footnote127" href="#FootnoteB127">[127]</a> 	Bork, op cit n 6, at 158-159; Sullivan, op cit n 6, at 175-179; Gellhorn
&amp; Kovacic, op cit n 31, at 176. These commentators
argue the Rule breached
section 1. For a contrary view see Carstensen, "The Content of the Hollow Core
of Antitrust: The Chicago
Board of Trade Case and the Meaning of the "Rule of
Reason" in Restraint of Trade Analysis" (1992) 15 Res in L&amp; Econ 1.</p>
<p><a name="Footnote128" href="#FootnoteB128">[128]</a> 	See Bork, op cit n 3, at 815-820; Ross, op cit n 26,at 124; Arthur, op
cit n 19, at 302-306;</p>
<p>Posner &amp; Easterbrook, op cit n 28, at 597; Gellhorn &amp; Kovacic, op cit
n 31, at 176 - 178.</p>
<p><a name="Footnote129" href="#FootnoteB129">[129]</a> 	Op cit n 123, at 238.</p>
<p><a name="Footnote130" href="#FootnoteB130">[130]</a> 	Arthur, op cit n 19, at 302 - 306.</p>
<p><a name="Footnote131" href="#FootnoteB131">[131]</a> 	Blecher, "Schwinn - An Example of a Genuine Commitment to Antitrust Law"
 <a href="/cgi-bin/LawCite?cit=%281975%29%2044%20Antitrust%20LJ%20550" title="View LawCiteRecord" class="autolink_findcases">(1975) 44 Antitrust LJ 550</a>, at 553.</p>
<p><a name="Footnote132" href="#FootnoteB132">[132]</a> 	Arthur, op cit n 19, at 302 - 306.</p>
<p><a name="Footnote133" href="#FootnoteB133">[133]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1927/62.html" title="View Case" class="autolink_findcases_inserted">[1927] USSC 62</a>;  <a href="/cgi-bin/LawCite?cit=273%20US%20392" title="View LawCiteRecord" class="autolink_findcases">273 US 392</a> (1927).</p>
<p><a name="Footnote134" href="#FootnoteB134">[134]</a> 	Ibid at 397 - 398.</p>
<p><a name="Footnote135" href="#FootnoteB135">[135]</a> 	Ibid at 401.</p>
<p><a name="Footnote136" href="#FootnoteB136">[136]</a> 	See for example, Ross, op cit n 26, at 127 - 128.</p>
<p><a name="Footnote137" href="#FootnoteB137">[137]</a> 	Sullivan &amp; Harris, op cit n 105, at 87.</p>
<p><a name="Footnote138" href="#FootnoteB138">[138]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1933/44.html" title="View Case" class="autolink_findcases_inserted">[1933] USSC 44</a>;  <a href="/cgi-bin/LawCite?cit=288%20US%20344" title="View LawCiteRecord" class="autolink_findcases">288 US 344</a> (1933).</p>
<p><a name="Footnote139" href="#FootnoteB139">[139]</a> 	Ibid at 360.</p>
<p><a name="Footnote140" href="#FootnoteB140">[140]</a> 	Ibid.</p>
<p><a name="Footnote141" href="#FootnoteB141">[141]</a> 	Ibid at 363.</p>
<p><a name="Footnote142" href="#FootnoteB142">[142]</a> 	Ibid.</p>
<p><a name="Footnote143" href="#FootnoteB143">[143]</a> 	Ibid at 375.</p>
<p><a name="Footnote144" href="#FootnoteB144">[144]</a> 	See <i>U.S.  v Socony-Vacuum Oil Co. </i><a href="http://www.worldlii.org/us/cases/federal/USSC/1940/112.html" title="View Case" class="autolink_findcases_inserted">[1940] USSC 112</a>;  <a href="/cgi-bin/LawCite?cit=310%20US%20150" title="View LawCiteRecord" class="autolink_findcases">310 US 150</a> (1940).</p>
<p><a name="Footnote145" href="#FootnoteB145">[145]</a> 	Ross, op cit n 26, at 133; P Areeda <i>Antitrust Analysis </i>(2nd ed,
1974), para 356.</p>
<p><a name="Footnote146" href="#FootnoteB146">[146]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1940/112.html" title="View Case" class="autolink_findcases_inserted">[1940] USSC 112</a>;  <a href="/cgi-bin/LawCite?cit=310%20US%20150" title="View LawCiteRecord" class="autolink_findcases">310 US 150</a> (1940).</p>
<p><a name="Footnote147" href="#FootnoteB147">[147]</a> 	Ibid at 221.</p>
<p><a name="Footnote148" href="#FootnoteB148">[148]</a> 	Ibid at 226, n 59.</p>
<p><a name="Footnote149" href="#FootnoteB149">[149]</a> 	Ibid at 221 - 223.</p>
<p><a name="Footnote150" href="#FootnoteB150">[150]</a> 	Ibid at 224, n 59.</p>
<p><a name="Footnote151" href="#FootnoteB151">[151]</a> 	Allison, op cit n 13, at 783.</p>
<p><a name="Footnote152" href="#FootnoteB152">[152]</a> 	Kauper, op  cit n 104, at 893.</p>
<p><a name="Footnote153" href="#FootnoteB153">[153]</a> 	Ross, op cit n 26, at 118.</p>
<p><a name="Footnote154" href="#FootnoteB154">[154]</a> 	 <a href="/cgi-bin/LawCite?cit=441%20US%201" title="View LawCiteRecord" class="autolink_findcases">441 US 1</a> (1979).</p>
<p><a name="Footnote155" href="#FootnoteB155">[155]</a> 	Ibid at 8.</p>
<p><a name="Footnote156" href="#FootnoteB156">[156]</a> 	Ibid at 9 (citations omitted).</p>
<p><a name="Footnote157" href="#FootnoteB157">[157]</a> 	Ibid at 19 - 20.</p>
<p><a name="Footnote158" href="#FootnoteB158">[158]</a> 	Ibid at 20.</p>
<p><a name="Footnote159" href="#FootnoteB159">[159]</a> 	Ibid at 19.</p>
<p><a name="Footnote160" href="#FootnoteB160">[160]</a> 	Ibid.</p>
<p><a name="Footnote161" href="#FootnoteB161">[161]</a> 	Ibid at 21 -23.</p>
<p><a name="Footnote162" href="#FootnoteB162">[162]</a> 	Ibid at 23.</p>
<p><a name="Footnote163" href="#FootnoteB163">[163]</a><i> Columbia Broadcasting System Inc v American Society of Composers,
Authors and Publishers, </i><a href="http://www.worldlii.org/us/cases/federal/USCA2/1980/290.html" title="View Case" class="autolink_findcases_inserted">[1980] USCA2 290</a>;  <a href="/cgi-bin/LawCite?cit=620%20F%202d%20930" title="View LawCiteRecord" class="autolink_findcases">620 F 2d 930</a> (2nd Cir. 1980), <i>cert denied,
</i> <a href="/cgi-bin/LawCite?cit=450%20US%20970" title="View LawCiteRecord" class="autolink_findcases">450 U.S. 970</a> (1981); see also <i>Buffalo Broadcasting Co v American Society
of Composers, Authors and Publishers, </i> <a href="/cgi-bin/LawCite?cit=744%20F%202d%20917" title="View LawCiteRecord" class="autolink_findcases">744 F 2d 917</a> (2nd Cir.1984) <i>cert
denied </i> <a href="/cgi-bin/LawCite?cit=469%20US%201211" title="View LawCiteRecord" class="autolink_findcases">469 US 1211</a> (1985).</p>
<p><a name="Footnote164" href="#FootnoteB164">[164]</a> 	Marks &amp; Jacobson, "Price Fixing: An Overview"  <a href="/cgi-bin/LawCite?cit=%281985%29%2030%20Antitrust%20Bull%20199" title="View LawCiteRecord" class="autolink_findcases">(1985) 30 Antitrust
Bull 199</a>, at 199.</p>
<p><a name="Footnote165" href="#FootnoteB165">[165]</a><i> Vogel v American Society of Appraisers, </i><a href="http://www.worldlii.org/us/cases/federal/USCA7/1984/852.html" title="View Case" class="autolink_findcases_inserted">[1984] USCA7 852</a>;  <a href="/cgi-bin/LawCite?cit=744%20F2d%20598" title="View LawCiteRecord" class="autolink_findcases">744 F2d 598</a>, 603 (7th Cir.
1984); Halverson, "The Future of Horizontal Restraints Analysis"  <a href="/cgi-bin/LawCite?cit=%281988%29%2057%20Antitrust%20LJ%2033" title="View LawCiteRecord" class="autolink_findcases">(1988) 57
Antitrust LJ 33.</a></p>
<p><a name="Footnote166" href="#FootnoteB166">[166]</a> 	Brunet, "Streamlining Antitrust Litigation by "Facial Examination" of
Restraints: The Burger Court and the Per Se - Rule of Reason
Distinction"  <a href="/cgi-bin/LawCite?cit=%281984%29%2060%20Wash%20L%20Rev%201" title="View LawCiteRecord" class="autolink_findcases">(1984)
60 Wash L Rev 1.</a></p>
<p><a name="Footnote167" href="#FootnoteB167">[167]</a> 	Ibid.</p>
<p><a name="Footnote168" href="#FootnoteB168">[168]</a> 	Op  cit n 93, at 280.</p>
<p><a name="Footnote169" href="#FootnoteB169">[169]</a> 	Ross, op cit n 152, at 182.</p>
<p><a name="Footnote170" href="#FootnoteB170">[170]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USCADC/1979/277.html" title="View Case" class="autolink_findcases_inserted">[1979] USCADC 277</a>;  <a href="/cgi-bin/LawCite?cit=606%20F%202d%201156" title="View LawCiteRecord" class="autolink_findcases">606 F 2d 1156</a>, 1163. (D.C. Cir. 1979).</p>
<p><a name="Footnote171" href="#FootnoteB171">[171]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1980/158.html" title="View Case" class="autolink_findcases_inserted">[1980] USSC 158</a>;  <a href="/cgi-bin/LawCite?cit=446%20US%20643" title="View LawCiteRecord" class="autolink_findcases">446 US 643</a> (1980).</p>
<p><a name="Footnote172" href="#FootnoteB172">[172]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USCA9/1979/1130.html" title="View Case" class="autolink_findcases_inserted">[1979] USCA9 1130</a>;  <a href="/cgi-bin/LawCite?cit=605%20F%202d%201097" title="View LawCiteRecord" class="autolink_findcases">605 F 2d 1097</a> (9th Cir. 1979).</p>
<p><a name="Footnote173" href="#FootnoteB173">[173]</a> 	Op  cit n 178, at 648.</p>
<p><a name="Footnote174" href="#FootnoteB174">[174]</a> 	Ibid at 649.</p>
<p><a name="Footnote175" href="#FootnoteB175">[175]</a> 	Ibid.</p>
<p><a name="Footnote176" href="#FootnoteB176">[176]</a> 	 <a href="/cgi-bin/LawCite?cit=457%20US%20332" title="View LawCiteRecord" class="autolink_findcases">457 US 332</a> (1982).</p>
<p><a name="Footnote177" href="#FootnoteB177">[177]</a> 	See for example, Liebeler, "1984 Economic Review of Antitrust
Developments: Horizontal Restrictions, Efficiency, and the Per Se
Rule" (1986)
33 UCLA Rev 1019; Gerhart, "The Supreme Court and Antitrust Analysis: The (Near)
Triumph of the Chicago School"  <a href="/cgi-bin/LawCite?cit=%281982%29%20Sup%20Ct%20Rev%20319" title="View LawCiteRecord" class="autolink_findcases">(1982) Sup Ct Rev 319</a>; Harrison, "Price Fixing,
the Professions and Ancillary Restraints Coping with Maricopa Country" (1982) 4
Univ Ill L Rev 925; Note,
<i>"Arizona v Maricopa County Medical Society:
</i>Supreme Court Refuses to Immunize Doctors Against Sting of Sherman Act
Section 1  (1983) Wisc L Rev 1203.</p>
<p><a name="Footnote178" href="#FootnoteB178">[178]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USCA9/1980/685.html" title="View Case" class="autolink_findcases_inserted">[1980] USCA9 685</a>;  <a href="/cgi-bin/LawCite?cit=643%20F%202d%20553" title="View LawCiteRecord" class="autolink_findcases">643 F 2d 553</a> (9th Cir. 1980).</p>
<p><a name="Footnote179" href="#FootnoteB179">[179]</a> 	Op  cit n 184, at 351.</p>
<p><a name="Footnote180" href="#FootnoteB180">[180]</a> 	Ibid at 347 - 349.</p>
<p><a name="Footnote181" href="#FootnoteB181">[181]</a> 	Ibid at 348.</p>
<p><a name="Footnote182" href="#FootnoteB182">[182]</a> 	Ibid at 353.</p>
<p><a name="Footnote183" href="#FootnoteB183">[183]</a> 	Ibid at 356 - 357.</p>
<p><a name="Footnote184" href="#FootnoteB184">[184]</a> 	Ibid at 364.</p>
<p><a name="Footnote185" href="#FootnoteB185">[185]</a> 	Ibid at 362.</p>
<p><a name="Footnote186" href="#FootnoteB186">[186]</a> 	Ibid.</p>
<p><a name="Footnote187" href="#FootnoteB187">[187]</a> 	Ibid at 366.</p>
<p><a name="Footnote188" href="#FootnoteB188">[188]</a> 	Ross, op cit n 26, at 139; Note, op cit n 177.</p>
<p><a name="Footnote189" href="#FootnoteB189">[189]</a> 	Ross, op cit n 26, at 140; Liebeler, op cit n 177, at 1048 - 1049; Note,
op cit n 185, at</p>
<p><a name="Footnote1226" href="#FootnoteB1226">[1226]</a>  - 1228.</p>
<p><a name="Footnote190" href="#FootnoteB190">[190]</a> 	 <a href="/cgi-bin/LawCite?cit=468%20US%2085" title="View LawCiteRecord" class="autolink_findcases">468 US 85</a> (1984).</p>
<p><a name="Footnote191" href="#FootnoteB191">[191]</a> 	Ibid at 105.</p>
<p><a name="Footnote192" href="#FootnoteB192">[192]</a> 	Ibid at 106 - 107.</p>
<p><a name="Footnote193" href="#FootnoteB193">[193]</a> 	Ibid at 107.</p>
<p><a name="Footnote194" href="#FootnoteB194">[194]</a> 	Ibid at 109.</p>
<p><a name="Footnote195" href="#FootnoteB195">[195]</a> 	Ibid at 100 - 101 (footnotes omitted).</p>
<p><a name="Footnote196" href="#FootnoteB196">[196]</a> 	Ibid at 117.</p>
<p><a name="Footnote197" href="#FootnoteB197">[197]</a> 	Ibid at 113 - 114.</p>
<p><a name="Footnote198" href="#FootnoteB198">[198]</a> 	Ibid at 109.</p>
<p><a name="Footnote199" href="#FootnoteB199">[199]</a> 	Ibid at 110</p>
<p><a name="Footnote200" href="#FootnoteB200">[200]</a> 	Justice William Rehnquist joined the dissent.</p>
<p><a name="Footnote201" href="#FootnoteB201">[201]</a> 	Op cit n 198, at 120 - 126.</p>
<p><a name="Footnote202" href="#FootnoteB202">[202]</a> 	Wood Hutchinson, "Antitrust 1984 : Five Decisions in Search of a Theory"
(1984) Sup</p>
<p>Ct Rev 69, at 108.</p>
<p><a name="Footnote203" href="#FootnoteB203">[203]</a> 	Liebeler, op cit n 177, at 1050 - 1061.</p>
<p><a name="Footnote204" href="#FootnoteB204">[204]</a> 	Op cit n 198, at 114.</p>
<p><a name="Footnote205" href="#FootnoteB205">[205]</a> 	Leibeler, op cit n 177, at 1058.</p>
<p><a name="Footnote206" href="#FootnoteB206">[206]</a> 	Ross, op cit n 26, at 141.</p>
<p><a name="Footnote207" href="#FootnoteB207">[207]</a> 	Bork, op cit n 6, at 435.</p>
<p><a name="Footnote208" href="#FootnoteB208">[208]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USSC/1985/148.html" title="View Case" class="autolink_findcases_inserted">[1985] USSC 148</a>;  <a href="/cgi-bin/LawCite?cit=472%20US%20284" title="View LawCiteRecord" class="autolink_findcases">472 US 284</a> (1985).</p>
<p><a name="Footnote209" href="#FootnoteB209">[209]</a><i> Polk Brothers Inc v Forest City Enterprises Inc </i>776 F 2d 185 (7th
Cir, 1985); <i>Rothery Storage &amp; Van Co v Atlas Van Lines Inc </i><a href="http://www.worldlii.org/us/cases/federal/USCADC/1986/214.html" title="View Case" class="autolink_findcases_inserted">[1986] USCADC 214</a>;  <a href="/cgi-bin/LawCite?cit=792%20F%202d%20210" title="View LawCiteRecord" class="autolink_findcases">792 F 2d
210</a> (D.C. Cir, 1986) <i>cert denied, </i> <a href="/cgi-bin/LawCite?cit=479%20US%201033" title="View LawCiteRecord" class="autolink_findcases">479 US 1033</a> (1987); <i>General
Leaseways Inc v National Truck Leasing Ass'n </i><a href="http://www.worldlii.org/us/cases/federal/USCA7/1984/965.html" title="View Case" class="autolink_findcases_inserted">[1984] USCA7 965</a>;  <a href="/cgi-bin/LawCite?cit=744%20F%202d%20588" title="View LawCiteRecord" class="autolink_findcases">744 F 2d 588</a> (7th Cir, 1984);
<i>Blackburn v Sweeney </i> <a href="/cgi-bin/LawCite?cit=53%20F%202d%20825" title="View LawCiteRecord" class="autolink_findcases">53 F 2d 825</a> (7th Cir, 1995).</p>
<p><a name="Footnote210" href="#FootnoteB210">[210]</a> 	<a href="http://www.worldlii.org/us/cases/federal/USCA1/1986/175.html" title="View Case" class="autolink_findcases_inserted">[1986] USCA1 175</a>;  <a href="/cgi-bin/LawCite?cit=779%20F%202d%20592" title="View LawCiteRecord" class="autolink_findcases">779 F 2d 592</a> (11th Cir, 1986) <i>cert denied </i> <a href="/cgi-bin/LawCite?cit=479%20US%20923" title="View LawCiteRecord" class="autolink_findcases">479 US 923</a> (1986).</p>
<p><a name="Footnote211" href="#FootnoteB211">[211]</a> 	Ibid at 601.</p>
<p><a name="Footnote212" href="#FootnoteB212">[212]</a> 	Ibid at 601 - 602.</p>
<p><a name="Footnote213" href="#FootnoteB213">[213]</a> 	Ibid at 602.</p>
<p><a name="Footnote214" href="#FootnoteB214">[214]</a> 	Ibid at 599.</p>
<p><a name="Footnote215" href="#FootnoteB215">[215]</a><i> Union Shipping NZ Ltd v Port Nelson Ltd </i>[1990] 2 NZLR 602.</p>
<p><a name="Footnote216" href="#FootnoteB216">[216]</a> 	 <a href="/cgi-bin/LawCite?cit=%5b1990%5d%202%20NZLR%20662" title="View LawCiteRecord" class="autolink_findcases">[1990] 2 NZLR 662</a>, at 700.</p>
<p><a name="Footnote217" href="#FootnoteB217">[217]</a> 	 <a href="/cgi-bin/LawCite?cit=%5b1988%5d%201%20NZLR%20530" title="View LawCiteRecord" class="autolink_findcases">[1988] 1 NZLR 530</a>, at 537.</p>
<p><a name="Footnote218" href="#FootnoteB218">[218]</a> 	 <a href="/cgi-bin/LawCite?cit=%5b1988%5d%202%20NZLR%20352" title="View LawCiteRecord" class="autolink_findcases">[1988] 2 NZLR 352</a>,at 358.</p>
<p><a name="Footnote219" href="#FootnoteB219">[219]</a> 	Op cit n 102.</p>
<p><a name="Footnote220" href="#FootnoteB220">[220]</a> 	Bork, op  cit n 3, at 798.</p>
<p><a name="Footnote221" href="#FootnoteB221">[221]</a> 	 <a href="/cgi-bin/LawCite?cit=%5b1970%5d%20NZLR%20170" title="View LawCiteRecord" class="autolink_findcases">[1970]  NZLR 170.</a></p>
<p><a name="Footnote222" href="#FootnoteB222">[222]</a> 	Ibid at 173.</p>
<p><a name="Footnote223" href="#FootnoteB223">[223]</a> 	Ibid.</p>
<p><a name="Footnote224" href="#FootnoteB224">[224]</a> 	FAR Bennion, <i>Statutory Interpretation  </i>(2nd ed, 1992), p 663.</p>
<p><a name="Footnote225" href="#FootnoteB225">[225]</a> 	Areeda, op cit n 15, at 29.</p>
<p><a name="Footnote226" href="#FootnoteB226">[226]</a> 	Vary, "Price Fixing :  Flawed Past, Uncertain Future"  <a href="/cgi-bin/LawCite?cit=%281995%29%203%20TPLJ%20126" title="View LawCiteRecord" class="autolink_findcases">(1995) 3 TPLJ 126</a>;
Blakeney &amp; Freilich, "The Per Se Prohibition of Price Fixing in Australia"
 <a href="/cgi-bin/LawCite?cit=%281986%29%2060%20ALJ%20668" title="View LawCiteRecord" class="autolink_findcases">(1986) 60 ALJ 668.</a></p>
<p><a name="Footnote227" href="#FootnoteB227">[227]</a> 	Symposium, "Private Antitrust Litigation" (1986) 78 Geo LJ 1163</p>
<p><a name="Footnote228" href="#FootnoteB228">[228]</a> 	Wood, "Costs and Benefits of Per Se Rules in Antitrust Enforcement"
 <a href="/cgi-bin/LawCite?cit=%281993%29%2038%20Antitrust%20Bull%20887" title="View LawCiteRecord" class="autolink_findcases">(1993) 38 Antitrust Bull 887</a>, at 895.</p>
<p><a name="Footnote229" href="#FootnoteB229">[229]</a> 	Ahdar, "The Competitive Effects and Legality of Maximum Price Fixing"
 <a href="/cgi-bin/LawCite?cit=%281989%29%2013%20NZULR%20271" title="View LawCiteRecord" class="autolink_findcases">(1989) 13 NZULR 271</a>,at 291); Wirtz, op cit n 72, at 628.</p>
<p><a name="Footnote230" href="#FootnoteB230">[230]</a> 	Carstensen, op cit n 127.</p>
<p><a name="Footnote231" href="#FootnoteB231">[231]</a> 	See authorities cited at n 127.</p>
<p><a name="Footnote232" href="#FootnoteB232">[232]</a> 	Evans &amp; Schmalensee, "Economic Aspects of Payment Card Systems and
Antitrust Policy Toward Joint Ventures"  <a href="/cgi-bin/LawCite?cit=%281995%29%2063%20Antitrust%20LJ%20861" title="View LawCiteRecord" class="autolink_findcases">(1995) 63 Antitrust LJ 861.</a></p>
<p><a name="Footnote233" href="#FootnoteB233">[233]</a> 	Carlton &amp; Frankel, The Antitrust Economic of Credit Card Networks"
 <a href="/cgi-bin/LawCite?cit=%281995%29%2063%20Antitrust%20LJ%20643" title="View LawCiteRecord" class="autolink_findcases">(1995) 63 Antitrust LJ 643</a> (1995); Carlton &amp; Frankel, "The Antitrust
Economics of Credit Card Networks: Reply to Evans and Schmalensee Comment"
 <a href="/cgi-bin/LawCite?cit=%281995%29%2063%20Antitrust%20LJ%20903" title="View LawCiteRecord" class="autolink_findcases">(1995) 63 Antitrust LJ 903.</a></p>
<p><a name="Footnote234" href="#FootnoteB234">[234]</a> 	Note op cit n 29, at 728.</p>
<p><a name="Footnote235" href="#FootnoteB235">[235]</a> 	Ibid.</p>
<p><a name="Footnote236" href="#FootnoteB236">[236]</a> 	Vary, op cit n 233, at 126.</p>
<p><a name="Footnote237" href="#FootnoteB237">[237]</a> 	See for example, Sullivan, "The Viability of the Current Law on
Horizontal Restraints"  <a href="/cgi-bin/LawCite?cit=%281987%29%2075%20CLR%20835" title="View LawCiteRecord" class="autolink_findcases">(1987) 75 Cal L Rev 835.</a></p>
<p><a name="Footnote238" href="#FootnoteB238">[238]</a> 	Bork, op cit n 3 and n 6.</p>
<p><a name="Footnote239" href="#FootnoteB239">[239]</a> 	Op  cit n 111.</p>
<p><a name="Footnote240" href="#FootnoteB240">[240]</a> 	Ibid.</p>
<p><a name="Footnote241" href="#FootnoteB241">[241]</a> 	Op  cit n 107 - 110.</p>
<p><a name="Footnote242" href="#FootnoteB242">[242]</a> 	[1982] ATPR, para 40 - 318.</p>
<p><a name="Footnote243" href="#FootnoteB243">[243]</a> 	Ibid at 43, 920.</p>
<p><a name="Footnote244" href="#FootnoteB244">[244]</a> 	[1983] ATPR, para 40,367</p>
<p><a name="Footnote245" href="#FootnoteB245">[245]</a> 	Vary, op  cit n 233 ; Blakeney &amp; Freilich, op cit n 233; Warner &amp;
Trebilcock, "Rethinking Price Fixing Law"  <a href="/cgi-bin/LawCite?cit=%281993%29%2038%20McGill%20L%20J%20679" title="View LawCiteRecord" class="autolink_findcases">(1993) 38 McGill L J 679</a>, at 713.</p>
<p><a name="Footnote246" href="#FootnoteB246">[246]</a> 	Baxt, Trade Practices -  "Price "Fixing" and "Maintaining" and a Rule of
Reason in</p>
<p>Australian Courts"  <a href="/cgi-bin/LawCite?cit=%281983%29%2057%20ALJ%20423" title="View LawCiteRecord" class="autolink_findcases">(1983) 57 ALJ 423</a>, at 424.</p>
<p><a name="Footnote247" href="#FootnoteB247">[247]</a> 	Ibid.</p>
<p><a name="Footnote248" href="#FootnoteB248">[248]</a> 	Sullivan, op cit n 6.</p>
<p><a name="Footnote249" href="#FootnoteB249">[249]</a> 	Op cit n 249, at 43, 920.</p>
<p><a name="Footnote250" href="#FootnoteB250">[250]</a> 	Sullivan, op cit n 6, at 200.</p>
<p><a name="Footnote251" href="#FootnoteB251">[251]</a> 	Op cit n 249, at 43, 920.</p>
<p><a name="Footnote252" href="#FootnoteB252">[252]</a> 	Sullivan, op cit n 6, at 200.</p>
<p><a name="Footnote253" href="#FootnoteB253">[253]</a> 	Op  cit n 249, at 43, 920.</p>
<p><a name="Footnote254" href="#FootnoteB254">[254]</a> 	Sullivan, op cit n 6, at 200.</p>
<p><a name="Footnote255" href="#FootnoteB255">[255]</a> 	Ibid at 197 - 198.</p>
<p><a name="Footnote256" href="#FootnoteB256">[256]</a> 	Ibid at 205.</p>
<p><a name="Footnote257" href="#FootnoteB257">[257]</a> 	Ibid at 206 - 207.</p>
<p><a name="Footnote258" href="#FootnoteB258">[258]</a> 	Ibid at 171.</p>
<p></p>


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