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Two rulings of the 2nd U.S. Circuit Court of Appeals indicated that the antitrust laws did not apply to certain practices in light of securities legislation. A third ruling of the same court limited the application of state-action immunity to circumstances in which private action was actively supervised by the government. Other interesting antitrust cases reported recently included two decisions as to the extent and nature of conduct needed to uphold a finding of conspiracy. IMMUNITY The 2nd Circuit affirmed dismissal of two separate class actions alleging that practices in the securities industry violated � 1 of the Sherman Act. The court concluded that in the particular context the securities laws impliedly repealed the antitrust laws. In one case, retail investors alleged that underwriters’ restrictions on “flipping” — the resale of stocks bought in an initial public offering soon after the initial distribution — stabilized prices in violation of the Sherman Act. In the other case, purchasers of equity options alleged that national stock exchanges conspired to restrict listing and trading of equity options on more than one exchange. The 2nd Circuit held in both cases that permitting antitrust suits would conflict with the Securities and Exchange Commission’s statutory authority to regulate these aspects of the securities industry while taking into consideration not only competition but also the economic health of the securities markets. The court observed that the SEC had examined the practice of restricting “flipping,” but had not prohibited underwriters’ restrictions. On the other hand, the SEC had prohibited restrictions on listing and trading of equity options. The 2nd Circuit explained that potential conflict can exist where the SEC has deliberately chosen not to regulate as well as where the SEC has regulated the challenged conduct. The court stated that the proper focus is not on the regulatory agency’s current position but rather on the agency’s authority to allow conduct that the antitrust laws would prohibit. Friedman v. Salomon/Smith Barney Inc. , 2002-2 CCH Trade Cases �73,908 and In re Stock Exchanges Option Trading Antitrust Litigation , 2003-1 CCH Trade Cases �73,927. The 2nd Circuit also overruled a district court’s dismissal of claims that a municipality acted unlawfully in appointing a nonprofit corporation to carry out mandatory electrical wire inspections on an exclusive basis. The 2nd Circuit held that while the municipality was authorized by the state to make exclusive appointments, the district court must examine whether government officials actively supervised the nonprofit corporation before concluding that the state-action doctrine gives rise to immunity from federal antitrust claims. Electrical Inspectors Inc. v. Village of East Hills , 2002-2 CCH Trade Cases �73,900 CONSPIRACY The 8th U.S. Circuit Court of Appeals affirmed dismissal of an antitrust claim brought by a minority-owned manufacturer of recycled toner cartridges. Plaintiff alleged that a distributor and a potential end-use customer formed an agreement in restraint of trade to injure plaintiff. The potential customer decided not to purchase plaintiff’s cartridges from the distributor because plaintiff’s owner, a former employee, had brought a racial discrimination suit against the potential customer. Subsequent to the potential customer’s refusal to purchase plaintiff’s cartridges, the distributor allegedly stopped promoting plaintiff’s cartridges and its sales declined. The 8th Circuit concluded that there was insufficient evidence, either direct or circumstantial, of the alleged conspiracy. TRI Inc. v. Boise Cascade Office Products Inc. , 2003-1 CCH Trade Cases �73,920 A district court denied summary judgment to defendants alleged to have conspired to fix prices and allocate customers in the market for silage bags, used by farmers to store livestock feed or grain. The court held that evidence of the advance exchange of pricing information between the two defendants and their efforts to maintain their relationship confidential were sufficient to withstand a motion for summary judgment. S & S Forage & Equipment Co. v. Up North Plastics Inc., 2002-2 CCH Trade Cases �73,904 (D. Minn.) MARKET DEFINITION The 1st Circuit reversed dismissal of an anesthesiologist’s claims that an exclusive arrangement between hospitals and an anesthesiology group that had fired plaintiff prevented her from practicing in her town in violation of � 1 of the Sherman Act. The appellate court concluded that the district court should not have dismissed plaintiff’s complaint for failure to allege a sufficiently broad geographic market. Plaintiff’s allegations that the state medical plan restricted geographic alternatives and that many of the hospitals’ customers were on Medicare (suggesting that they could not travel easily to another city for medical care) were held to preclude a determination on the pleadings as to whether the relevant geographic market was properly limited to one town or should encompass a wider area. Morales-Villalobos v. Garcia-Llorens, 2003-1 CCH Trade Cases �73,924 Following a bench trial, a district court dismissed attempted monopolization claims against defendants, plaintiffs’ competitors in the manufacture and operation of photo booths, because there was no dangerous probability that defendants would acquire monopoly power in the relevant market. The court rejected plaintiffs’ proposal to limit the relevant market to photo booths or photo sticker booths, finding that photo booths compete for consumer purchases and retail location space with other types of vending and amusement products, such as electronic and carnival games and “kiddie rides.” The court noted that shopping mall owners consider photo booths to be temporary specialty tenants that, along with other amusement products, are subject to standard, nonexclusive short-term leases and that there are no significant barriers to entry into the photo booth business. KIS, S.A. v. Foto Fantasy Inc., 2003-1 CCH Trade Cases �73,916 (N.D. Tex.) EXCLUSIVE DISTRIBUTION The 2nd Circuit affirmed a summary judgment dismissing antitrust claims of a cola-syrup seller which challenged “loyalty” provisions in its competitor’s agreements with certain independent food service distributors. The loyalty provisions prohibited the handling of plaintiff’s fountain syrup. The appellate court rejected plaintiff’s proposed relevant product market as improperly restricted to certain types of distributors or customers of fountain syrup. Plaintiff’s allegations of monopoly power were ruled to be refuted by evidence that defendant drastically reduced its price in the face of aggressive competition from plaintiff. The 2nd Circuit also rejected plaintiff’s argument that the loyalty provisions were a per se unlawful horizontal group boycott because defendant assured distributors that the loyalty provisions would be uniformly enforced. The court ruled that such assurances did not demonstrate a horizontal agreement between the distributors. PepsiCo Inc. v. The Coca-Cola Company , 2003-1 CCH Trade Cases �73,914 JURISDICTION The D.C. Circuit reversed a district court’s dismissal for lack of subject-matter jurisdiction of antitrust claims brought by foreign purchasers of vitamins. Plaintiffs alleged a worldwide price-fixing conspiracy. Recognizing a split between circuits on the proper interpretation of the Foreign Trade Antitrust Improvements Act, the D.C. Circuit held that where the anticompetitive conduct produces the requisite harm to U.S. commerce, the act permits suits by foreign plaintiffs who are injured solely by that conduct’s effect on foreign commerce. The court interpreted the statutory requirement that the anticompetitive conduct “give rise to a claim” as satisfied when the conduct’s harmful ef-fect on U.S. commerce gives rise to “a claim” by someone, even if not the foreign plaintiff who is before the court. Empagran S.A. v. F. Hoffman-LaRoche Ltd. , 2003-1 CCH Trade Cases �73,934 INJURY The 7th Circuit affirmed in part and reversed in part a district court’s dismissal of antitrust claims against gas utilities arising from their control of gas pipelines. The appellate court found that one of the plaintiffs — an operator of a natural gas storage facility — was directly injured by the alleged conspiracy to deny plaintiffs access to defendants’ natural gas pipelines. On the other hand, alleged injuries to the operator’s marketing affiliate did not confer antitrust standing because any such injuries were derivative. The appellate court also affirmed dismissal of plaintiffs’ claims under the “essential facilities” doctrine because connection to defendants’ pipeline was not essential to plaintiffs’ competition. Midwest Gas Services Inc. v. Indiana Gas Co. , 2003-1 CCH Trade Cases �73,935 Plaintiff, a prospective entrant into the phosphate concentrate market, alleged that defendants violated � 2 of the Sherman Act by refusing to set reasonable tariffs for plaintiff’s use of a phosphate slurry pipeline. The 10th Circuit affirmed summary judgment for defendants. The appellate court found that plaintiff did not sufficiently demonstrate antitrust injury to its business or property because, despite its leases of phosphate mines and its intention to enter the phosphate concentrate market, it did not demonstrate preparedness to enter the market or diminution in the value of the leases. The court rejected plaintiff’s argument that defendants’ actions rendered it futile to undertake additional preparatory steps to enter the market. Ashley Creek Phosphate Co. v. Chevron USA Inc., 2003-1 CCH Trade Cases �73,912 ARBITRATION The 7th Circuit affirmed a district court’s confirmation of an arbitration award, holding that the arbitrators’ construction of licensing agreements was not subject to judicial review even if the agreements, as construed by the arbitrators, might violate the Sherman Act. The licensor of a patent covering a process for producing the leading anesthetic gas acquired a firm that invented a noninfringing process for the production of a generic alternative to the anesthetic. The arbitration tribunal concluded that exclusivity provisions in the agreements precluded the licensor from bringing the generic anesthetic to market in competition with its licensee. The licensor challenged the arbitrators’ construction of the agreements as unlawful per se under �1 of the Sherman Act. The 7th Circuit, in a split decision, stated that the arbitration of antitrust disputes cannot be relitigated in the courts and that the parties are bound not only by the arbitrators’ construction of the agreements but also by their determination of the agreements’ lawfulness under the antitrust laws. The majority suggested that the licensor could resolve the antitrust problem it raised by divesting its rights to the alternative noninfringing process to a third-party not bound by the exclusivity provisions. Baxter Int’l Inc. v. Abbott Laboratories , 2003-1 CCH Trade Cases �73,930 COMMENT The trend of recent cases is to enforce arbitration clauses governing controversies in which antitrust issues may be present. As is illustrated by the case reported immediately above, however, such enforcement may abdicate to private parties the judicial power to decide whether the public interest is served by particular restraints of trade, as well as whether a private injury has occurred. Perhaps private parties should be able to provide for alternate dispute resolution of claims of private injury, but should they be able, for example, to agree that an arbitrator would be authorized to enforce agreements which a court would strike down as serious antitrust violations contrary to the public interest? William T. Lifland is senior counsel of the firm of Cahill Gordon & Reindel ( www.cahill.com). Elai Katz, an associate at the firm, assisted in the preparation of this article. If you are interested in submitting an article to law.com, please click herefor our submission guidelines.

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