Horizontal Restraints

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CHAPTER II

HORIZONTAL RESTRAINTS

Horizontal restraints or agreements are those among competitors or

potential competitors. They raise particular antitrust concerns because of

their inherent potential to eliminate or limit competition. Yet technology

markets have multiple characteristics that encourage procompetitive

horizontal arrangements.

A key characteristic of modern technology markets (especially in

software, computer hardware, electronics, and telecommunications) is

that a product’s value often depends, to varying degrees, on its

interoperability with other firms’ products. A second characteristic is the

constant and rapid development of next-generation technology and the

associated short life cycle of many products. Those two characteristics

give rise to a third: to speed development, competitors often develop new

products for their own and adjacent markets through joint ventures,

collaborations, and less formal types of “coopetition” with competitors.

The Antitrust Guidelines for Collaboration Among Competitors

(Competitor Collaboration Guidelines) issued by the Department of

Justice (DOJ) and Federal Trade Commission (FTC) highlight this

potential procompetitive benefit1 of competitor collaborations in

technology markets.2

1. See U.S. DEP’T OF JUSTICE & FED. TRADE COMM ’N, ANTITRUST

GUIDELINES FOR COLLABORATIONS AMONG COMPETITORS § 1.1 (2000)

[hereinafter COMPETITOR COLLABORATION GUIDELINE S], available at

www.ftc.gov/sites/default/files/documents/public_events/joint-venture-

hearings-antitrust-guidelines-collaboration-among-competitors/ftcdo j

guidelines-2.pdf (defining procompetitiv e benefit as an “agreement’s

favorable competitive consequences, without taking account of its

anticompetitive harm”).

2. See id. § 2.3 (competitor collaborations may result in more efficient

exploitation of technol ogy that benefits “consumers through the reduction

of costs and the introduction of new products”). This Handbook is not

limited to technology markets as defined in the DOJ and FTC’s Antitrust

Guidelines for the Licensing of Intellectual Property. See U.S. DEP’T OF

46 Handbook on Antitrust in Technology Industries

Courts have not created separate rules for horizontal arrangements

between technology firms, nor carved out technology exceptions from

traditional antitrust principles. But courts have recognized the

procompetitive benefits of collaborations among competitors in

technology markets, and have therefore generally analyzed them under

the rule of reason which weighs their anticompetitive effects (if any)

against their procompetitive effects.3

This chapter discusses horizontal agreements that may give rise to

antitrust concerns in technology industries, including agreements

controlling or affecting the price of products, agreements in the

formation or operation of joint ventures, agreements setting industry

standards, non-competition agreements, agreements involving

intellectual-property (IP) rights (such as patent-pooling agreements and

cross-licensing patents), agreements dividing markets, and concerted

refusals to deal and boycotts.4 Discussion of merger and acquisition

agreements will be left to Chapter 4.

JUSTICE & FED. TR ADE COMM’N, ANTITRUST GUIDELINES FOR THE

LICENSING OF INTELLECTUAL PROPERTY § 3.2.2 (2017) [hereinafter 2017

IP GUIDELINES], available at https://www.justice.gov/atr/IPguidelines/

download (defining technology markets as consisting of “the intellectual

property that is licensed . . . and its close substitutes—that is, the

technologies or goods that are close enough substitutes significantly to

constrain significantly the exercise of market power with respect to the

intellectual property that is licensed”).

3. See Princo Corp. v. ITC, 616 F.3d 1318, 1334-35 (Fed. Cir. 2010) (en

banc) (noting that “resear ch joint ventures . . . ca n have significant

procompetitive features, and it is now well settled that an agreement

among joint venturers to pool their research efforts is analyzed under the

rule of reason” (citing Addamax Corp. v. Open Software Found., 152

F.3d 48, 52 (1st Cir. 1998))).

4. Another area of growing concern to worldwide enforcement agencies that

has not yet percolated through the courts in relation to horizontal

restraints is the importance to competition of access to “big data”—the

aggregation of large amounts of d ata to support machine lear ning and the

use of algorithms to offer new and different products or set prices. See

FED. TRADE COMM’N, BIG DATA: A TOOL FOR INCLUSION OR EXCLUSION

(2016), avaialable at https://www.ftc.gov/system/files/documents/reports/

big-data-tool-inclusion-or-exclusion-understanding-issues/160106big-

data-rpt.pdf; Margrethe Vestager, Competition Comm’r, EC, Big Data

Horizontal Restraints 47

A. Fundamentals

1. What Is a Horizontal Agreement?

Section 1 of the Sherman Act prohibits “[e]very contract,

combination . . . or conspiracy, in restraint of trade.”5 Courts have

interpreted this language to prohibit anticompetitive agreements among

competitors.6 Generally, competitors are defined as firms that operate at

the same level in a given market. The Competitor Collaboration

Guidelines highlight that competitors “encompasses both actual and

potential competitors.”7 In technology industries, it can be difficult to

determine who is a competitor versus who is instead vertically aligned,

much less a potential competitor. Non-public research & development

(R&D) and leapfrog product development only complicate the issues.

and Competition, Remarks to the EDPS-BEUS Conference on Big Data

in Brussels, Belgium (Sept. 29, 2016), available at https://ec.europa.eu/

commission/commissioners/2014-2019/vestager/announcements/big-

data-and-competition_en; see also COMPETITION COMM., DIRECTORATE

FOR FINANC IAL & ENTE R. AFFAIRS, OECD, ALGORITHMS AND

COLLUSION – BACKGROUOND NOTE BY THE SECRATARIAT (June 9, 2017),

available at https://one.oecd.org/document/DAF/COMP(2017)4/en/pdf

(“[T]his paper focuses on the question of whether [big data ] algorithms

can make tacit collusion easier not only in oligopolistic markets, but also

in markets which do not manifest the structural features that are usually

associated with the risk of collusion”).

5. 15 U.S.C. §1 (2012).

6. Section 1 also addresses anticompetitive agreements among non-

competitors, which are addressed in Chapter 3 on vertical agreements.

See United States v. Apple, Inc., 791 F.3d 290 (2d Cir. 2015) (finding a

non-competitor, vertical participant liable for its role in orchestrating an

anticompetitive horizontal agreement among book publishers), cert.

denied, 136 S. Ct. 1376 (2016).

7. COMPETITOR COLLABORATION GUIDELINES, su pra note 1, § 1.1 n.6 (“A

firm will be considered a potential competitor if there is evidence that

entry by that firm is reasonably probable in the absence of the relevant

agreement, or that competitively significant decisions by actual

competitors are constrained by concerns that anticompetitive conduct

likely would induce the firm to enter.”).