Federal Trade Commission Horizontal Restraint Cases: An Update

• Author: James A. Langenfeld,Louis Silvia
• Published date: 01 September 2004
• Date: 01 September 2004
• DOI: http://doi.org/10.1177/0003603X0404900303
• Subject Matter: Article

The Antitrust Bulletin/Fall

200.:/

Federal Trade Commission

horizontal restraint cases: an update

BY JAMES A. LANGENFELD* and LOUIS SILVIA **

521

Anticompetitive agreements among competitors (horizontal restraints)

have long been a staple

of

the Federal Trade Commission's (FTC or

Commission) antitrust mission. With the FTC's focus for more than

two

decades

on

agreements

among

professionals

that

restrict

competition,

the modern

era

of

the

FTC's

antitrust

enforcement

actions against horizontal restraints may well be said to have begun

with

the

Supreme

Court's

1979

decision

in

American

Medical

Association (AMA),' Adecade ago we analyzed the 81 horizontal

restraint cases in which the FTC had an

order

issued from 1980

through

1992.1

The

FTC

has

remained

heavily

involved

with

*Director, LECG, Evanston, IL, and Adjunct Professor. Loyola Uni-

versity Law School, Chicago, IL.

** Assistant Director, Bureau

of

Economics. Federal Trade Commis-

sion. Washington, DC.

AUTHORS' NOTE: We thank Denis Breen

for

his helpful comments. This arti-

cle reflects our opinions and does not necessarily represent the position

of

LECG. Loyola University. the Federal Trade Commission. or that

of

any

individual FTC Commissioner.

American Medical

Ass'n

v. FTC. 94 F.T.C. 701 (1979), enforced

as modified. 638 F. 2d 443 (2d Cir. 1980),

affd

by an equally divided

Court, 455 U.S. 676 (1982).

1

James

Langenfeld

&

Louis

Silvia. Federal Trade Commission

Horizontat Restraint Cases: An Economic Perspective. 61

ANTITRUST

LJ.

653 (1993).

() 2004by Federal Legal Publications, Inc.

522

The antitrust bulletin

horizontal restraints since then, although many of these cases have not

involved the professions. According to our count, the Commission has

issued 84 additional orders in horizontal restraints cases from 1993

through the end of 2003, and 40 of these involved ambulatory health

care (all

involving

professions)

or

professional,

scientific,

and

technical services.

The

Commission's

enforcement

policy

during

this

time

has

undergone further evolution and articulation. The Commission's and

DOl's

joint issuance in 1993 (and revision in 1996) of antitrust policy

statements

for

health

care

contained

a

notable

articulation

of

enforcement policy regarding the horizontal restraints; the statements

on health care provider networks are particularly notable in view of

the many

price-fixing

cases

that

the

FTC

has

brought

against

unintegrated

associations

of

physicians

and

other

medical

professionals} In 1997 and 1998 the Commission and the Department

of Justice (DOJ) held a series of public hearings and roundtables on

competitor collaborations." This effort culminated in the agencies'

joint issuance in 2000 of policy guidelines on horizontal agreements.'

Decisions in the federal courts since the early 1990s have had

important implications for the Commission's treatment of horizontal

restraints.

Most

important

among

these is the

Supreme

Court's

decision in the Commission's Califomia Dental Association (CDA)6

case. CDA in effect marked the Commission's abandonment of the

legal approach to horizontal restraints that had been articulated in

U.S.

DEPARTMENT

OF

JUSTICE

AND

THE

FEDERAL

TRADE

COMMISSION,

STATEMENTS

OF

ANTITRUST

ENFORCEMENT

POLICY

IN

HEALTH

CARE

(1996)

[hereinafter

HEALTH CARE

POLICY

STATEMENTS],

available at

http://www

.ftc.gov/reports/hlth3s.htm.

4See Federal

Trade

Commission,

Joint Venture Project, available

at

http://www.ftc.gov/opp/jointvent/.

FEDERAL

TRADE COMMISSION AND

U.S.

DEPARTMENT

OF

JUSTICE,

ANTITRUST

GUIDELINES

FOR

COLLABORATION

AMONG

COMPETITORS

(2000)

[hereinafter

COLLABORATION

GUIDELINES], available at

http://www.ftc.gov

/os/2000/04/ftcdojguidelines.

pdf.

6

California

Dental

Association,

121

F.T.C.

190

(1996),

aff'd. 128

F.

3d

720

(9th

Cir.

1997),

vacated, remanded

526

U.S.

756

(1999),

revd,

remanded

224

F.

3d

942

(9th

Cir.

2000).

Horizontal restraint cases

523

Massachusetts

Board

of

Optometry

(Mass. Board's,' The 2003

decision in PolyGram Holding' (the Three Tenors), as discussed in

more

detail

below,

represents

an

important

restatement

of

the

Commission's

analytical

framework

for

horizontal

restraints,

returning to a unified legal analysis similar to that of Mass. Board.

This

article

updates

our

1993

study

of

the

Commission's

horizontal restraint cases through the end of 2003. We focus on three

questions: First, how do overall enforcement levels before and after

1993 compare? Second, have there been changes in the kinds of cases,

as

distinguished

by,

among

other

things,

the

underlying

anticompetitive theory of harm, the types of challenged restrictions, or

concentration on different industries? Third, what interesting new

economic issues has this new crop of cases yielded, particularly in

those cases that were litigated?

In

section

I we

review

our

classification

system

for

FTC

horizontal restraint cases. Section II reports on trends in overall

enforcement and in case characteristics by economic theory, industry,

and other important characteristics. Section III highlights economic

issues raised in recently litigated cases.

Section

IV offers some

concluding remarks.

LClassification

of

FTC horizontal restraint cases

We begin by reviewing our taxonomy of FTC horizontal restraint

cases, Horizontal restraints are agreements among competitors that

reduce rivalry along one or more dimensions. Whether the restrictions

relate directly to price or quantity, or involve nonprice dimensions

such as advertising and product differentiation, the resulting effect on

the market equilibrium is in general the same.

Fewer

products or

services are sold, and consumers pay higher, quality-adjusted prices.

This result represents a coordinated or cooperative market outcome,

7Massachusetts Board of Registration in Optometry, 110 F.T.C.

549 (1988).

8PolyGram Holding, Inc., 5 Docket No. 9298, slip op. available at

http://www.ftc.gov/os/2003/07polygramopinion.pdf.