12.3 Prohibited Conduct

• Library: Virginia Business Torts (Virginia CLE) (2019 Ed.)

12.3 PROHIBITED CONDUCT

12.301 Conspiracy to Restrain Trade and Monopolization. In language viewed as virtually identical to Sherman Act § 1 ¹⁵ "in almost every respect," ¹⁶ the Act declares that "[e]very contract, combination or conspiracy in restraint of trade or commerce in this Commonwealth is unlawful." ¹⁷ The U.S. Supreme Court has declared that similar language under the Sherman Act makes unlawful only "unreasonable" restraints of trade. ¹⁸ While most restraints are evaluated under a so-called Rule of Reason which commonly employs a complicated economic analysis of the restraint, ¹⁹ the Court has declared that "certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue . . . are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." ²⁰ Practices deemed by the Court as per se unlawful include price fixing, ²¹ division of markets, group boycotts, and certain tying

[Page 604]

arrangements. ²² One Virginia court has ruled that the Act does not per se prohibit post-employment noncompete agreements. ²³

The Act also tracks Sherman Act § 2 by prohibiting "[e]very conspiracy, combination, or attempt to monopolize, or monopolization of, trade or commerce of the Commonwealth. . . ." ²⁴ The Fourth Circuit Court of Appeals recently noted that "[u]nder § 2 of the Sherman Act, a defendant is liable for a monopolization claim when that defendant (1) possesses monopoly power and (2) willfully acquires or maintains that power. ²⁵ "To prevail on an attempted monopolization claim under § 2, a claimant must show (1) a specific intent to monopolize a relevant market, (2) predatory or anticompetitive acts, and (3) a dangerous probability of successful monopolization." ²⁶

While there is considerable case law discussing the federal counterparts of these statutes, there is little Virginia law on the subject. Indeed, the federal cases which address Virginia antitrust claims often lump their analysis of the federal and state claims together. ²⁷ While the Virginia Supreme Court in 2000 addressed claims brought by a promoter of live entertainment that a competitor, Cellar Door, had conspired to restrain trade in violation of section 59.1-9.5 and conspired, combined, or attempted to monopolize in violation of section 59.1-9.6, in connection with the accessibility of concert venues, the court, with no analysis, simply noted that the plaintiff had not provided sufficient facts to sustain the claims. ²⁸

12.302 Price Discrimination. The Act also prohibits price discrimination and predatory behavior. ²⁹ The Act's price discrimination provisions parallel very closely the language of the Robinson-Patman Act, ³⁰ including

[Page 605]

that Act's defenses, except in one very important respect—the prohibited conduct in the Act is broader than that proscribed by the Robinson-Patman Act in that the Act prohibits discrimination in the price of services as well as goods. ³¹

For example, the Act makes it unlawful to "discriminate in price between different purchasers of commodities and services of like grade and quality," where (i) the purchasers are in competition, (ii) the commodities and services "are sold for use, consumption or resale within the Commonwealth," and (iii) "the effect of the discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with the customers of either of them. . . ." ³²

12.303 Defenses to Price Discrimination. Where the plaintiff presents prima facie proof of discrimination in price or services or facilities furnished or in payment for services or facilities, the burden of proof shifts to the defendant to show one of the defenses or "justifications" permitted under the Act. ³³

A. Cost Justification Defense. One of those defenses is known in federal antitrust law as the "cost justification defense." According to that defense, the Act is not intended to prevent differentials in price that make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from differing methods or differing quantities of the goods or services sold. ³⁴ Under the defense, a seller may justify a lower, discriminatory price based on these differences in cost between selling to different purchasers. The requirements of the "cost justification defense," though, are rigorous. ³⁵

[Page 606]

B. Functional Discounts Defense. Closely tied to the cost justification defense is the allowance of "functional discounts," which is a judicially created doctrine of federal law. Under the doctrine, a price difference (i.e., a lower price) is allowed to a buyer to compensate the buyer for certain functions or services performed by that buyer for the seller. ³⁶ Those functions or services could include warehousing, inventory control, storage, or transportation. For the defense to apply, all competing purchasers must be treated equally. ³⁷ While this doctrine is not found in the Act, presumably it is also available under state law to the same extent as federal law given the Act's admonition that it is to be "construed . . . in harmony with judicial interpretation of comparable federal statutory provisions." ³⁸

C. Changing Conditions Defense. The Act also adopts the "changing conditions" defense available under federal law, stating that the Act is not intended to prevent different prices attributable to changing conditions of the market or the marketability of the goods concerned. ³⁹ Changing conditions may include actual or imminent deterioration of perishable goods, obsolescence of seasonal goods, court ordered distress sales, or good faith "going out of business" sales. ⁴⁰

D. Meeting Competition Defense. The well-known federal "meeting competition" defense also is available under the Act. Under that defense, as long as the differential in price or services or facilities furnished "was made in good faith to meet an equally...