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By the end of its last term, the Supreme Court decided four significant antitrust cases, resulting in one of the most antitrust-focused terms in the court’s history. In rendering decisions favorable to the defendants in all four cases, the court quickly drew the dreaded “pro-business” label. Commentators on the left criticized the decisions as marking a hard-right turn on antitrust policy, while those on the right lauded the court’s restoration of free-market principles to competition analysis. These broad pronouncements overstate the similarities among the cases, which arose in a wide range of industries and raised quite different legal issues. Bell Atlantic v. Twombly was a suit by local telephone and Internet service subscribers against major providers of those services; it addressed the pleading standard a complaint must meet to avoid dismissal of a Sherman Act conspiracy claim. In Leegin Creative Leather Products v. PSKS, a women’s apparel store’s lawsuit against a maker of high-end leather accessories, the court considered whether a manufacturer’s setting of a minimum resale price for its goods is per se illegal or requires a more extensive consideration of competitive effects to assess liability. In Credit Suisse Securities v. Billing, a group of investors alleged major investment banks that underwrote initial public offerings had conspired to extract high fees and other terms from IPO investors; the question was whether the securities laws pre-empted antirust claims based on this conduct. Finally, in Weyerhaeuser v. Ross-Simmons Hardwood Lumber, a sawmill operator claimed a competitor bid up the price of saw logs to drive competitors out of business; at issue was the proper test for determining when so-called “predatory buying” violates the Sherman Act. Despite the obvious differences among these cases, together they reveal that the current court will take a very practical approach to antitrust cases, is concerned that bright-line tests will stifle business practices that a full review of competitive effects would prove pro-consumer, is interested in whether pervasive regulation of business activity under other federal laws should preclude antitrust challenges to the same conduct, and believes trial courts must separate the wheat from the chaff at the motion to dismiss stage, given the extraordinary expense and burden of today’s electronic discovery in antitrust litigation. Twombly In 1984, AT&T’s local telephone service was divested, leaving a system of regional monopolies known as the “Baby Bells.” In 1996, the Telecommunications Act sought to end those regional monopolies by restructuring local telephone markets and requiring the Baby Bells to open their networks to new competitors. In Twombly, a class of local telephone and Internet service subscribers sued the Baby Bells, claiming that rather than facilitating the entry of competitors, the carriers engaged in a conspiracy to divide the market and inhibit start-up providers. In support of this claim, plaintiffs alleged all of the Baby Bells had simultaneously engaged in substantially similar conduct designed to shut out start-up service providers. Beyond that, plaintiffs’ only factual allegation was a public statement by the CEO of one of the Baby Bells that “competing in another [Baby Bell's] territory did not seem right.” The question before the court was whether these allegations satisfied the requirement of Rule 8(a)(2) of the Federal Rules of Civil Procedure that a complaint contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” If not, the Baby Bells would have been entitled to an order dismissing the claims. Because the Supreme Court had stated 50 years earlier that a complaint must not be dismissed unless “the plaintiff can prove no set of facts in support of his claim that would entitle him to relief,” courts consistently have viewed the “short and plain statement” requirement as extremely minimal. The Twombly plaintiffs contended they had satisfied this requirement by pleading parallel conduct among the Baby Bells from which a conspiracy could be inferred. The court disagreed, finding these allegations insufficient to state a claim. In the context of an antitrust conspiracy claim, Rule 8 requires a plaintiff to file “a complaint with enough factual matter (taken as true) to suggest that an agreement was made.” While a plaintiff may introduce evidence of parallel conduct as circumstantial proof of a conspiracy, the court reasoned that evidence is not conclusive; parallel conduct may be equally consistent with the exercise of independent business judgment as with conspiracy. At the pleading stage, factual allegations of parallel conduct alone are insufficient to establish a plaintiff is entitled to relief under the Sherman Act. Thus, although plaintiffs’ claims of parallel action were enough to suggest a conspiracy was conceivable, they did not show a conspiracy was actually plausible. In reaching this conclusion, the court emphasized that this sort of careful parsing of conspiracy allegations to ensure compliance with Rule 8 is particularly important given that “proceeding to antitrust discovery can be expensive.” And, facing the burden of massive discovery may lead to unwarranted settlements: “The threat of discovery expense will push cost-conscious defendants to settle even anemic cases before reaching those proceedings.” This reveals the court’s real-world approach to antitrust claims: consistently resolving close calls in plaintiffs’ favor at the pleading stage has potentially massive economic consequences, which may have little to do with the merits of the claims. LEEGIN In 1911, the Supreme Court established in Dr. Miles Medical Co. v. Jon D. Park & Sons that it is per se illegal for a manufacturer and its distributor to agree on a minimum price the distributor can charge for the manufacturer’s goods. In other words, if a minimum price agreement was challenged, the manufacturer would have no opportunity to demonstrate the arrangement was pro-competitive. In the years after Dr. Miles, the court has eliminated the per se rule against similar “vertical restraints” because they may be pro-competitive and should be evaluated under the “rule of reason,” which takes into consideration the actual competitive effects of the business practice. In Leegin, the court likewise overruled the per se rule against minimum resale price agreements. Leegin was sued when it stopped selling leather goods to PSKS because it was reselling them below Leegin’s minimum resale price. The court reasoned that while this sort of arrangement can be anticompetitive, it could likewise be pro-competitive, since it may promote inter-brand competition by encouraging Leegin’s dealers to offer a more luxurious retail experience and more services when offering Leegin products. Given the presence of these pro-competitive rationales for Leegin’s minimum price rule, and that “per se rules are appropriate only for conduct that . . . would always or almost always tend to restrict competition,” the per se rule should not apply. BILLING The plaintiffs in Billing were a class of IPO investors who claimed the top underwriting firms in the U.S. conspired to manipulate the market for newly issued securities, including by refusing to sell a new issue unless the buyer agreed to purchase the same stock in the aftermarket at higher prices, pay inflated commissions and buy less attractive securities from the same underwriter. Plaintiffs claimed these practices caused them to overpay for IPO shares and inflated the underwriters’ commissions, all in violation of the Sherman Act. The underwriters had sought dismissal of these antitrust claims, on the ground that they were pre-empted by the securities laws. Congress had not explicitly pre-empted antitrust challenges in enacting the securities laws; the underwriters argued that, because the securities laws so directly address underwriting practices and the SEC had consistently regulated this conduct, plaintiffs’ antitrust claims were implicitly pre-empted. The court agreed with the underwriters, finding that “the SEC possesses considerable power to forbid, permit, encourage, discourage, tolerate, limit and otherwise regulate virtually every practice in which underwriters engage,” and, in practice, has routinely exercised that regulatory power over underwriters. The court also found the complexity of the underwriting business requires a high degree of expertise and “fine, complex, detailed” line-drawing, which warranted leaving underwriting regulation to the SEC. Permitting antitrust claims against conduct already subject to SEC review could deter behavior that the SEC has determined pro-competitive and beneficial to the securities markets. The court also recognized plaintiffs may launch an antitrust action for strategic reasons: to circumvent the heightened pleading standards and more limited remedies available under the securities laws and obtain possible duplicative recovery by “dress[ing] what is essentially a securities complaint in antitrust clothing.” The court did not address whether it would similarly scrutinize antitrust claims filed in other heavily regulated industries, but this is a possibility antitrust practitioners will be closely following. WEYERHAEUSER In Weyerhaeuser, the court addressed the standard for establishing “predatory buying,” a type of monopolization claim under Section 2 of the Sherman Act. The plaintiff sawmill operator alleged Weyerhaeuser, the dominant sawmill operator in the region, bid to purchase saw logs at prices making it impossible for plaintiff to compete to buy logs – i.e., plaintiff could not buy them and turn a profit on finished lumber. Plaintiff alleged Weyerhaeuser did so to monopolize the regional market for sales of finished lumber; by driving up saw log prices, Weyerhaeuser could drive competing sawmills out of business and then sell finished lumber at inflated prices. The question was how to determine whether the prices paid by Weyerhaeuser were “predatory.” The court adopted the standard previously adopted in predatory selling cases – i.e., where a dominant seller lowers prices to levels that render its competitors unable to sell competing goods at a profitable level. To recover on a predatory selling theory, a plaintiff must prove the defendant priced goods below the cost incurred in offering those goods for sale; and has a “dangerous probability” of recouping its investment in below-cost pricing by inflating prices for the goods once its competitors are out of the market. The court found both predatory selling and predatory buying use unilateral pricing measures for anticompetitive means and cause the alleged predator to incur losses in order to later make profits, so an equivalent test should apply. Thus, the court adopted the standard that predatory buying exists only where the plaintiff can show a defendant: Bid for inputs (here, saw logs) at levels requiring the defendant to sell its output (here, finished lumber) below its costs of offering that output for sale; and has a dangerous probability of recouping its losses through inflated output prices once its competitors are out of the market. The court therefore reversed the trial court’s judgment against Weyerhaeuser rendered under a less stringent standard, given that plaintiff had conceded it could not meet the more stringent standard. In-house counsel faced with the question of whether a business arrangement may result in antitrust liability cannot rely solely on the results of the court’s decisions in these cases. The real impact of these decisions will be felt in how trial courts apply them going forward, and there are signs that the cases are taking effect already. Most concretely, a number of district courts already have dismissed antitrust conspiracy claims based on Twombly, and defendants have quickly made use of Billing against other antitrust challenges in the securities industry. And, no doubt, counsel for manufacturers and distributors are taking a fresh look at proposed minimum resale price policies and agreements, given Leegin’s more flexible approach to those arrangements. Antitrust lawyers will keep a close watch for how the court’s scrutiny of fact-bare conspiracy claims, antitrust claims in regulated industries and overuse of bright-line tests for liability will be carried forward to future Supreme Court terms and in lower courts. WESLEY R. POWELL is a partner in theGlobal Competition Practice Group at Hunton &Williams in New York. G. SHIREEN HILAL is an associate with the firm.

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