Distribution, Competition, and Antitrust / IP Law

Can a Litigation Settlement Violate the Antitrust Laws? — Part II

In a blog post about a week ago, I discussed the issue of litigation settlements potentially violating the antitrust laws, and suggested a basic framework for analyzing the problem. How would this analysis work in practice? Here, I address that second question.

Consider the following hypothetical. Suppose that the plaintiff complains the defendant has engaged in attempted monopolization by entering into exclusive contracts with the majority of distributors throughout the country. Suppose further that, although the relevant market is nationwide, distributors, by law, are licensed on a state-by-state basis. Let us further stipulate that the Section 2 claim is bona fide and has some significant chance of being successful if tried. The following are potential settlement agreement restrictions, and analyses of the same:

1. Defendant agrees to terminate some or all exclusive distribution relationships. Analysis: unproblematic; restriction itself highly unlikely to violate Section 1.

2. Defendant and plaintiff agree to allocate the distributors, with defendant keeping some under exclusive contracts and plaintiff keeping some under exclusive contracts. Analysis: problematic, because plaintiff is not entitled, under Section 2, to such an arrangement, which may itself be anti-competitive (it could, for example, foreclose competition by other competitors or potential competitors at the level of the defendant and plaintiff).

3. Defendant agrees to pricing no less than X for period of time Y to allow plaintiff the ability to compete. Analysis: problematic, because this restriction is not directly related to the alleged Section 2 violations, and a Section 2 remedy would most likely not include court-imposed restrictions on the defendant’s pricing.

4. Defendant and plaintiff agree on reciprocal pricing commitments. Analysis: a fortiori, even more problematic than No. 3, because we now have a bilateral agreement between competitors regarding prices or price levels.

In short, I am suggesting that one look at the likely injunctive relief available in the underlying litigation, and compare it to the settlement agreement. If the settlement agreement is within the boundaries of injunctive relief that is likely to be awarded by the court (or at least possibly awarded), then its provisions may be lawful.

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About Howard Ullman

Antitrust, competition, and IP law enthusiast.

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