Chapter IV. Restraints of Trade

• Pages: 195-244

195

CHAPTER IV

RESTRAINTS OF TRADE

A. Introduction

This chapter examines the implications of Section 1 of the Sherman

Act for actors in the telecommunications industry. Section 1 makes

illegal “[e]very contract, combination in the form of trust or otherwise, or

conspiracy, in restraint of trade or commerce.”1 Despite its broad

language, the Act does not prohibit every restraint of trade, but rather

prohibits only unreasonable restraints of trade.2 As the Supreme Court

noted in Chicago Board of Trade v. United States,3 “[e]very agreement

concerning trade, every regulation of trade, restrains. To bind, to restrain,

is of their very essence.”4 Such agreements are not necessarily illegal.

The Sherman Act only proscribes restraints of trade that are

anticompetitive. Furthermore, the object of the Sherman Act is to protect

competition, not competitors.5

1. Requirement of Contract, Combination, or Conspiracy

Unilateral actions are outside the scope of Section 1 and are

generally reserved for analysis under Section 2 of the Act.6 As the

language of Section 1 indicates, a reviewing court must first find

evidence of a contract, combination or conspiracy before finding a

violation.7

1. 15 U.S.C. § 1 (2006).

2. Standard Oil Co. v. United States, 221 U.S. 1 (1911).

3. 246 U.S. 231 (1918).

4. Id. at 238.

5. “The antitrust laws . . . were enacted for ‘the protection of competition,

not competitors.’” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429

U.S. 477, 488 (1977) (quoting Brown Shoe Co. v. United States, 370 U.S.

294, 320 (1962) (emphasis by court).

6. See Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 761 (1984).

7. Courts generally view the terms combination and conspiracy as

synonymous. See 6 PHILLIP AREEDA & HERBERT HOVENKAMP,

ANTITRUST LAW, ¶ 1403 (3d ed. 2010). All three terms are generally

considered synonymous with “agreement,” and require a “meeting of the

196 Telecom Antitrust Handbook

A conspiracy is a “conscious commitment to a common scheme

designed to achieve an unlawful objective.”8 Courts do not necessarily

require direct proof of an agreement to find that two companies have

engaged in a conspiracy or combination in restraint of trade. They can

infer a conspiracy or agreement from the conduct of the defendants.9 “A

§1 agreement may be found when ‘the conspirators had a unity of

purpose or a common design and understanding, or a meeting of minds

in an unlawful arrangement.’”10 If a company does not formally accept a

competitor’s invitation to restrain trade, but nevertheless acts as if a

formal arrangement is in place, a conspiracy may be found.11

2. Pleading Conspiracy

To state a claim under Section 1, plaintiffs must allege “enough

factual matter (taken as true) to suggest that an agreement was made.”12

In Bell Atlantic Corp. v. Twombly, the Supreme Court addressed “the

proper standard for pleading an antitrust conspiracy through allegations

of parallel conduct”13 under Fed. R. Civ. P. Rule 8(a) and held that an

allegation of parallel conduct, without more, cannot state a claim for

conspiracy.14 Instead, to state a Section 1 conspiracy claim, plaintiffs

must allege “some further factual enhancement” sufficient to “nudge[]

their claims across the line from conceivable to plausible.”15 The Court

explained: “Asking for plausible grounds to infer an

agreement . . . simply calls for enough fact to raise a reasonable

minds.” See Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752,

764 (1984).

8. Monsanto, 465 U.S. at 764.

9. See United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940);

Interstate Circuit, Inc. v. United States, 306 U.S. 208, 221 (1939)

(holding that “[i]n order to establish agreement,” the government can

“rely on inferences drawn from the course of conduct of the alleged

conspirators”).

10. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771

(1984) (quoting American Tobacco Co. v. United States, 328 U.S. 781,

810 (1946)).

11. See Socony-Vacuum Oil, 310 U.S. at 150.

12. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007).

13. Id. at 553.

14. Id. at 556-57 (“Lawful parallel conduct fails to bespeak unlawful

agreement,” and a “conclusory allegation of agreement at some

unidentified point does not supply facts adequate to show illegality.”).

15. Id. at 557, 570.

Restraints of Trade 197

expectation that discovery will reveal evidence of illegal agreement.”16

This “plausibility” standard replaced the rule from Conley v. Gibson,17

which called for courts to dismiss cases only where a “plaintiff can prove

no set of facts in support of his claim which would entitle him to

relief.”18 The standard may permit dismissal of a claim even where the

factual allegations suggest a “possibility” the plaintiff would be entitled

to relief, if that possibility falls short of “plausibility.”19 But complaints

grounded on plausible allegations, “even if it strikes a savvy judge that

actual proof of those facts is improbable,” are not subject to dismissal.20

The Supreme Court clarified its new “plausibility” standard in

Ashcroft v. Iqbal.21 The Court explained that ascertaining whether a

complaint states a plausible claim for relief is a “context-specific task.”22

It invited lower courts to “begin by identifying pleadings that, because

they are no more than conclusions, are not entitled to the assumption of

truth,” and emphasized that “[w]hile legal conclusions can provide the

framework of a complaint, they must be supported by factual

allegations.”23 Properly alleged factual allegations must be accepted as

true by the court; and then, drawing on “judicial experience and common

sense,” the court must determine whether the claim is plausible.24

Twombly itself offered few specifics on exactly what types of

allegations suffice to render allegations of a Section 1 conspiracy

“plausible,” except in a footnote where it cited “several examples”

offered by “[c]ommentators [of] parallel conduct allegations that would

state a § 1 claim under this standard.”25 Those examples consisted of: (1)

“parallel behavior that would probably not result from chance,

coincidence, independent responses to common stimuli, or mere

16. Id. at 556.

17. 355 U.S. 41 (1957).

18. Twombly, 550 U.S. at 561, 563 (citing Conley, 355 U.S. at 45-46, and

finding that “[t]he [no set of facts] phrase is best forgotten as an

incomplete, negative gloss on an accepted pleading standard: once a

claim has been stated adequately, it may be supported by showing any set

of facts consistent with the allegations in the complaint.”).

19. See id. at 557 (distinguishing “between possibility and plausibility of

‘entitle[ment] to relief’”) (brackets in original).

20. Id. at 556.

21. 556 U.S. 662 (2009) (involving a civil claim against U.S. government

officials for prisoner abuse and discrimination).

22. Id. at 679.

23. Id.

24. Id. at 678-79.

25. Twombly, 550 U.S. at 556 n.4.