ANTITRUST INJURY: INTRODUCTION

1. ANTITRUST INJURY:BEFORE AND AFTER BRUNSWICKBy John M. DesiderioNew York State Bar AssociationAntitrust Section Annual ProgramJanuary 29, 2004

2. ANTITRUST INJURY: INTRODUCTION

3. ANTITRUST INJURY – INTRODUCTION • HISTORICAL ANTECEDENTS OF “ANTITRUST INJURY” CONCEPT • WHAT IT IS AND WHY IT MATTERS • THE SIGNIFICANCE TO ANTITRUST LITIGATION SINCE BRUNSWICK

4. ANTITRUST INJURY – INTRODUCTION • THE STATUTORY BASIS • Sherman Act, § 1, 15 U.S.C. § 1: Every contract, combination in the form or trust or otherwise, or conspiracy, in restraint of trade or commerce . . . Is declared to be illegal. • Sherman Act, § 2, 15 U.S.C. § 2: Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize . . . shall be deemed guilty of a felony.

5. ANTITRUST INJURY – INTRODUCTION • THE STATUTORY BASIS: • Clayton Act, § 4(a), 15 USC § 15(a): [A]ny person who shall be injured in his business or property by reason of anything forbidden in theantitrustlaws may sue therefor . . . and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.

6. ANTITRUST INJURY – INTRODUCTION • THE STATUTORY BASIS: • Clayton Act, § 16, 15 USC § 26: Any person, firm, or corporation, or association shall be entitled to sue for and have injunctive relief, . . ., against threatened loss or damage by a violation of theantitrustlaws . . . when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, under the rules governing such proceedings. * * *

7. ANTITRUST INJURY – INTRODUCTION • WHAT IS HARM CAUSED BY (OR THREATENED BY) AN ANTITRUST VIOLATION? • WHAT ELSE BUT “ANTITRUST INJURY” ? • YET, NO MENTION OF “ANTITRUST INJURY” UNTIL 87 YEARS AFTER ENACTMENT OF THE SHERMAN ACT.

8. ANTITRUST INJURY – INTRODUCTION • THE SUPREME COURT’S DEFINITION: [A]ntitrust injury . . . Isinjury of the type the antitrust lawswere intended to prevent and that flows from that whichmakes defendants’ acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of the anticompetitive acts made possible by the violation. It should, in short, be “the type of loss that the claimed violations . . . would be likely to cause.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc. 429 U.S. 477, 489 (1977)

9. ANTITRUST INJURY – INTRODUCTION • THE SUPREME COURT’S DEFINITION: Sections 4 and 16 are best understood as providing complementary remedies for a single set of injuries. Accordingly, we conclude that in order to seek injunctive relief under § 16, a private plaintiff must allegethreatened loss or damage “of the type the antitrust laws were designed to prevent and that flows from that which makes defendants’ acts unlawful.” Cargill, Inc. v. Montfort of Colorado, Inc., 479 U.S. 104, 113 (1986)

10. ANTITRUST INJURY – INTRODUCTION 27 YEARS AFTER BRUNSWICK: • “Antitrust Injury” is a familiar concept. • Courts routinely decide : Whether the plaintiff’s alleged harm constitutes “antitrust injury,” i.e., harm the antitrust laws were intended to prevent; OR Whether the alleged harm is of no concern to the antitrust laws.

11. ANTITRUST INJURY – INTRODUCTION • What was the state of antitrust law before Brunswick? • Was “antitrust injury” judicial legislation? OR • Did Brunswick merely articulate principles that were always part of antitrust law?

12. ANTITRUST INJURY – INTRODUCTION • Brunswick’s Revolutionary Effect on Proving Injury • Expanded the role of economists in antitrust litigation: Pre-Brunswick (Measure of Damages) Post-Brunswick (Anticompetitive Effects): (Has the plaintiff suffered damage the antitrust laws were intended to prevent?)

13. ANTITRUST INJURY: ANTECEDENTS – ORIGINS What Was Antitrust Law Intended to Prevent?

14. ANTITRUST INJURY: ANTECEDENTS -- ORIGINS • Standard Oil (1911): “The dread of enhancement of prices and of other wrongs which it was thought would flow from the undue limitation on competitiveconditions . . . led, as a matter of public policy, to the prohibition or treating as illegal all contracts or acts which were unreasonably restrictive of competitive conditions.”

15. ANTITRUST INJURY:ANTECEDENTS -- ORIGINS • Evils Perceived to “Flow From” Monopoly: -- Power to fix prices -- Power to limit production -- Deterioration in quality of monopolized goods

16. ANTITRUST INJURY: ANTECEDENTS -- ORIGINS Senator Sherman: “Society is now disturbed by forces never felt before . . . . [whose] sole object . . . is to make competition Impossible . . . control the market, raise or lower prices, as will best promote its selfish interests. . . . It is the kind of combination we have to deal with now.” ******* “In providing a remedy the intention of the combination Is immaterial. . . . If the natural effects of its acts are injurious, it they tend to produce evil results, . . . It may be restrained, be punished with a penalty or with damages.”

17. ANTITRUST INJURY: ANTECEDENTS -- ORIGINS • EARLY SUPREME COURT CASES DID NOT CHARACTERIZE THE INJURY • MONTAGUE V. LOWRY (1904): Fact-specific, but identified those elements of the plaintiffs’ harm --- that were the “natural effects” of the defendants’ acts, and --- that “flowed from the undue limitation on competition.” • A century after Lowry, cases show same “antitrust injury” Carpet Group International v. Oriental Rug Importers Assn., 227 F3d 62 (3d Cir. 2000) Rossi v. Standard Roofing, 156 F3d 452 (3d Cir. 1998)

18. ANTITRUST INJURY: ANTECEDENTS – TRANSITION EARLY TO MID-20TH CENTURY

19. ANTITRUST INJURY: ANTECEDENTS -- TRANSITION • EARLY TO MID-20TH CENTURY • STORY PARCHMENT (1931) “The natural and probable effect of the combinationand price cutting would be to destroy normal prices.” The kind of injury that Brunswick would later say reflected the “anticompetitive effect of either the violation or of the anticompetitive acts made possible by the violation.”

20. ANTITRUST INJURY: ANTECEDENTS -- TRANSITION • EARLY TO MID-20TH CENTURY • ZENITH v. HAZELTINE (1969) “The injury alleged by Zenith was precisely the type of loss that the claimed violations of the antitrust laws would be likely to cause.” Words that the Supreme Court would later cite in Brunswick as one definition of antitrust injury.

21. ANTITRUST INJURY: ANTECEDENTS -- TRANSITION • EARLY TO MID-20TH CENTURY • GAF v. CIRCLE FLOOR(2d Cir. 1973) “Whether viewed in terms of ‘lack of standing’ or the absence of antitrust damages, the courts, in denying recovery to various kinds of plaintiffs, have sought to confine recovery to those who have been injured by restraints on competitive forces in the economy.”

22. GAF v. CIRCLE FLOOR (Cont.) • GAF was not injured by reason of violations alleged. • Only a person whose competitive business position is harmed by anticompetitive effects of the alleged restraint can maintain a treble damage action. • GAF’s damages were not the economic result of the anticompetitive effects of the alleged violations. • The anticompetitive effects of a takeover would be felt not by GAF but by competitors of GAF and CIRCLE FLOOR. • No antitrust damages because no diminution of GAF’s competitive position.

23. BRUNSWICK’s TEACHINGS WHAT THE SUPREME COURT DISCOVERED IN PLAIN HINDSIGHT

24. BRUNSWICK’S TEACHINGS • Causation Is Not Enough: Injury that is arguably traceable to an antitrust violation does not automatically qualify as “antitrust injury.” • Courts Must Distinguish Between: • loss that occurs by reason of a violation, and • loss that occurs by reason of that which makes defendant’s actions unlawful.

25. BRUNSWICK’s TEACHINGS EXPLAINED • ATLANTIC RICHFIELD (1990) • Antitrust injury arises only from anticompetitive aspects of a defendant’s conduct. • Requiring antitrust injury ensures that plaintiff’s claimed harm corresponds to the rationale for finding a violation of the antitrust law in that particular case. • Requiring antitrust injury prevents plaintiffs from recovering damages or equitable relief for losses caused by lawful competitive conduct. • Requiring antitrust injury ensures that plaintiffs can recover only for losses caused by competition-reducing aspects or effects of a defendant’s behavior. • Pro-competitive or efficiency enhancing aspects of nominal antitrust violations have no role in the definition of antitrust damages.

26. BRUNSWICK’s LEGACY A FOCUS ON ANTITRUST ESSENTIALS FOR ANTITRUST STANDING AND LIABILITY

27. BRUNSWICK’s LEGACY • Antitrust Injury takes many forms and applies to all antitrust violations. • Blue Shield of Virginia v. McReady (1982) “[W]hile an increase in price resulting from a dampening of competitive market forces is assuredly one type of injury for which § 4 potentially offers redress . . . That is not the only form of injury remediable under § 4.”

28. BRUNSWICK’s LEGACY • ANTITRUST INJURY AS ANTITRUST STANDING • Increased reliance by federal courts on “antitrust injury” requirement in deciding whether a plaintiff has been “injured in his business or property by reason of anything forbidden in the antitrust laws.” • “Antitrust Injury” test provides more relevant, consistent, and theoretically-sound basis for determining “antitrust standing” than tests courts relied upon prior to Brunswick, such as “direct injury,” “target area,” “zone of interests,” or various “balancing” tests.

29. BRUNSWICK’s LEGACY • Associated General Contractors(1983) In deciding standing, courts“shouldanalyze in each situation”: • The causal connection between the antitrust violation and the plaintiff’s harm. • The intent of the defendant to cause the harm. • Whether the alleged injury is of the type for which the antitrust laws were intended to provide redress. • The directness of the injury (to address possible speculative claims). • The existence of more direct victims. • The potential for duplicative recoveries and/or the danger of complex apportionment of damages.

30. BRUNSWICK’s LEGACY • Courts Have Generally Ignored AGC’s Directive • “Antitrust Injury” has been treated as the sine qua non of “antitrust standing” • Balaklaw v. Powell (2d Cir. 1994) -- Courts have developed a two-pronged analysis. -- “As a necessary first step, courts must determine whether the the plaintiff has suffered an antitrust injury.” -- If courts find “antitrust injury,” then they must determine whether any of the other factors prevent plaintiff from being an efficient enforcer of the antitrust laws.

31. BRUNSWICK’s LEGACY • COMPETITOR CASES: Is Plaintiff’s Injury Caused By Vigorous Competition Or By Competition-Reducing Conduct? • HARM IS “ANTITRUST INJURY” OR IT IS NOT. • NO FURTHER “STANDING” INQUIRY REQUIRED. • AGC FACTORS THAT ARE NOT DETERMINATIVE: CAUSATION, INTENT, DIRECTNESS OF INJURY, DUPLICATIVE RECOVERY, COMPLEX APPORTIONMENT OF DAMAGES.

32. BRUNSWICK’s LEGACY • CONSUMER CASES: • Conduct That Enhances Price, Reduces Output, Or Affects Consumer Choice Is “Antitrust Injury.” • BUT ILLINOIS BRICK AND OTHER AGC FACTORS WILL APPLY.

33. BRUNSWICK’s LEGACY • DISTRIBUTOR CASES: • Harm Caused By Anticompetitive Agreements Between Supplier(s) And Plaintiff’s Competitors Is “Antitrust Injury.” • ILLINOIS BRICK And Other AGC Factors Generally Do Not Apply (Especially Where PerSe Violations Are Alleged).

34. CONCLUSION • Although “antitrust injury” was not formally defined until 1977, the elements of the concept have been part of antitrust law from its very inception. • “Antitrust injury” has required more economic analysis. • “Antitrust Injury” has become the threshold focus of the “antitrust standing” inquiry. • Situation not likely to change in foreseeable future. • In Verizon v. Trinko (decided 1/13/04), the Supreme Court avoided deciding the antitrust standing issues raised in that case. • While Justice Stevens would have dismissed on standing grounds, he also, apparently, would have done so without using the full AGCsix-factor analysis.