Friday, January 17, 2014

Polygram Holding, Inc. v. Federal Trade Commission case brief

Polygram Holding, Inc. v. Federal Trade Commission case brief summary

Polygram and Warner agreed to jointly distribute a recording of “The Three Tenors” 1998 concert outside the U.S., sharing the worldwide profit or loss and the costs for all marketing and promotional activities jointly. Each had previously distributed (and held the rights for) a previous recording by the tenors. In order to prevent competition to sell the previous albums, they agreed to and, with some trouble, carried out an “advertising moratorium” with regard to the previous two recordings around the release of the 1998 album. C.J.

Ginsburg noted the increasing use of a “quick look” rule of reason approach by the Supreme Court that does not focus on categorizing particular restraints, but makes whether the challenged restrain harms or enhances competition the primary inquiry. The Court approved the FTC’s legal framework and condemned the advertising moratorium.

  • Ginsburg is actually a serious antitrust expert, who has worked for the DOJ’s Antitrust Bureau and has a great deal of experience.
  • The Polygram-Warner agreement to restrict advertising and refrain from price cutting looks “suspiciously like a naked price fixing agreement between competitors.”
  • Ginsburg compares the new recording to simply producing a new SUV; it may create some additional demand for old SUVs, but if the market does not want the new SUV without price restraints on old SUVs, the new SUV should fail. Although it may be beneficial for a product not to have competition, that is not a cognizable benefit under the antitrust laws.
Legal Considerations
  • Emphasizes that the per se rules, quick look rules, and the full-blown rule of reason are all part of the same analysis—an inquiry into whether the challenged restrain harms or enhances competition.
  • The FTC’s quick look to condemn:
    1. Π must bring evidence to show that it is obvious from the nature of the challenged restraint that it is “inherently suspect”—the rebuttable presumption of illegality arises from a close resemblance to a per se violation or other restraint already shown to be harmful to competition.
    2. Δ may refute the presumption with plausible and legally cognizable competitive justifications, including explanations why generally condemnable practices are not harmful in the specific industry or will likely benefit consumers.
    3. Π may attempt to persuade, without evidence, that restraint very likely harmed consumers.
Π may produce sufficient evidence to show that anticompetitive effects are in fact likely.
    1. Δ must produce evidence to show the restraint does not in fact harm consumers or has “precompetitive virtues” that outweigh its burden upon consumers.

  • Polygram never fulfills its Step 2 requirements to rebut the initial presumption, consequently if fails under the quick look to condemn analysis of the FTC.
  • This case is responsive to the Court’s opinion in California Dental Ass’n v. FTC (1999) at 187 (acknowledging the existence of an intermediate quick look analysis, but requiring more from the lower court’s analysis of relative anticompetitive tendencies in the instant case prior to condemnation).
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1 comment:

  1. Baker suggests that an alternative interpretation of Polygram has a more simplified test:
    1)Π has burden of production on harm.
    2)Δ has burden of production on benefits.
    3)Π may show less restrictive alternative
    Π may show that harm exceeds the benefits (to competition).

    Competitor Collaboration Guidelines are essentially an informal restatement of the law.

    The rules that the Court has enacted are effected through burden shifting, although Baker thinks of them as simply excluding evidence, though there is a conceptual difference, the effect is quite similar.


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