Musthavedness

• Author: Richard M. Steuer
• Position: Member of the New York Bar
• Pages: 447-474

MUSTHAVEDNESS

R

ICHARD

M. S

TEUER

*

musthavedness \m st

•

'hav

•

d

•

n s\ n: the state of being needed and having no

adequate substitute

No, it’s not a real word but it is a real concept. All “conditional pricing”

cases, whether they involve bundled discounts, loyalty discounts, or tying by

means of differential pricing, rest on evidence that the seller markets a “must

have” product or service, which confers market power.

In many of the decided cases, courts have applied this concept without spe-

cifically recognizing it. In other cases, courts have begun addressing more

explicitly the issue of whether or not a product qualifies as a “must have”

purchase, sometimes using the term “indispensable” or distinguishing be-

tween “contestable” and “incontestable” purchases.

1

* Member of the New York Bar.

1

See McWane, Inc. v. FTC, 783 F.3d 814, 834, 838 (11th Cir. 2015) (“economically infeasi-

ble” for distributors to drop McWane products (citation omitted)); ZF Meritor, LLC v. Eaton

Corp., 696 F.3d 254, 277 (3d Cir. 2012) (characterizing Eaton transmissions as “necessary prod-

ucts” for truck makers); LePage’s Inc. v. 3M, 324 F.3d 141, 156 (3d Cir. 2003) (characterizing

Scotch-brand tape as “indispensable” to retailers); Insight Equity A.P. X, LP v. Transitions Opti-

cal, Inc., 2016-1 Trade Cas. (CCH) ¶ 79,684 (D. Del. 2016) (noting that plaintiff contended that

“[t]ransitions lenses were a ‘must-carry product’ for U.S. lens casters”); cf. PNY Techs., Inc. v.

SanDisk Corp., 2014-2 Trade Cas. (CCH) ¶ 78,834, at *6 (N.D. Cal. 2014) (exclusive dealing

arrangement between manufacturer of allegedly “must-have” products and retailers not unlawful

where terminable on short notice and other channels of distribution, including direct sales

through e-commerce, were available). In its 2009 complaint against Intel, the Federal Trade

Commission characterized Intel as “a ‘must have’ or essential supplier” to computer makers.

Complaint ¶ 50, Intel Corp., FTC Docket No. 9341 (Dec. 16, 2009), www.ftc.gov/sites/default/

files/documents/cases/091216intelcmpt.pdf; see also Complaint ¶ 28, United States v. United

Reg’l Health Care Sys., No. 7:11-cv-00030 (N.D. Tex. filed Feb. 25, 2011) (“insurers . . . con-

sider United Regional a ‘must-have’ hospital”) (final judgment filed Feb. 29, 2011).

“Contestable” purchases, in the simplest terms, are those for which the purchaser is willing

and able to substitute an alternative product, while “incontestable” purchases are those for which

the purchaser is unable or unwilling to accept a substitute.

447

448

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NTITRUST

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[Vol. 81

Either way, the standard employed for determining “musthavedness” some-

times is not much more exacting than the “I know it when I see it” test.

2

Yet,

with so much riding on the assessment of “musthavedness,” a deeper under-

standing and a more nuanced approach is in order.

I. HIDING IN PLAIN SIGHT

Assessments of “musthavedness” have been made in every type of condi-

tional pricing decision, even if the term “must have” never appears.

In bundled discount cases, the issue is whether one or more of the products

in the bundle is a “must-have” product. For example, in the seminal case of

SmithKline Corp. v. Eli Lilly & Co.,

3

a pharmaceutical manufacturer sold hos-

pitals a bundle of products that included the two leading antibiotics in their

category, for which hospitals demonstrated heavy (and decidedly inelastic)

demand, as well as a third antibiotic that was the therapeutic equivalent of one

of the other two but faced competition from a rival manufacturer. The more

the hospitals spent on any of the antibiotics in the bundle, the greater the

discount they earned on the entire bundle, including the two antibiotics they

needed to buy from that manufacturer in any event. The rival manufacturer,

with only an antibiotic that was competitive with the third antibiotic in the

bundle, found it hard to compete.

4

In loyalty discount cases, where there is only one type of product, “mus-

thavedness” can be present when, for some portion of the customer’s

purchases of that product, the customer “must have” the products of a particu-

lar manufacturer. For example, in ZF Meritor, LLC v. Eaton Corp.,

5

Eaton, a

manufacturer of heavy-duty truck transmissions, provided loyalty rebates to

truck makers whose purchases met certain targets. The court found that Eaton

was the “dominant manufacturer” of these transmissions and consequently no

truck maker could satisfy its own customers’ demands “without at least some

Eaton products,” making that portion a must-have purchase. A competing

transmission manufacturer found it impossible to compete and exited the

market.

2

Cf., Bon-Ton Stores, Inc. v. New York, 881 F. Supp. 860, 869–70 & n.5 (W.D.N.Y. 1994)

(“customers know a department store when they see it,” paraphrasing Jacobellis v. Ohio, 378

U.S. 184, 197 (1964) (Stewart, J., concurring)).

3

575 F.2d 1056 (3d Cir. 1978).

4

The rival, SmithKline, could match the 3% rebate offered on the entire bundle by the first

manufacturer, Lilly, only by offering rebates on its one antibiotic of between 16% and 35%,

depending upon each customer’s volume. Id. at 1061–62; cf. Eisai, Inc. v. Sanofi Aventis U.S.,

LLC, 821 F.3d 394, 406 (3d Cir. 2016) (plaintiff failed to demonstrate what percentage of al-

leged “incontestable demand” for a particular drug “was based on its unique cardiology indica-

tion as opposed to . . . other factors”).

5

696 F.3d 254 (3d Cir. 2012).