Reflections on Matsushita and 'Equilibrating Tendencies': Lessons for Competition Authorities

• Author: Stephen Calkins
• Position: Professor of Law, Wayne State University
• Pages: 15-46

REFLECTIONS ON MATSUSHITA AND

“EQUILIBRATING TENDENCIES”:

LESSONS FOR COMPETITION AUTHORITIES

S

TEPHEN

C

ALKINS

*

Sometimes the simplest points are best. And it was a simple point that I

made in my fraternal twin publications on “equilibrating tendencies in the

antitrust system”:

1

In a system of law, as in nature, changes do not occur in a vacuum. Changes

to one part of a legal system may stimulate compensating adjustments else-

where, and the equilibrium position will depend both on the initial action

and on the legal system’s reaction. Attention to the initial changes alone

will conceal their likely ultimate consequences.

2

This article looks back on equilibrating tendencies and Matsushita’s

3

role in

them and looks briefly at current developments and particularly across the

pond to the European Union. It then sets forth several lessons for competition

agencies arising from consideration of equilibrating tendencies.

* Professor of Law, Wayne State University. This article draws on my experiences as a Mem-

ber of Ireland’s Competition and Consumer Protection Commission and its predecessor institu-

tion, the Competition Authority, and as General Counsel of the U.S. Federal Trade Commission,

but all views expressed herein are exclusively my own. For the avoidance of doubt—a great Irish

expression—I am not speaking on behalf of any Irish or American agency, and although many of

my examples will be American, the suggestions made are quite generally applicable.

1

Stephen Calkins, Summary Judgment, Motions to Dismiss, and Other Examples of Equili-

brating Tendencies in the Antitrust System, 74 G

EO

. L.J. 1065 (1986) [hereinafter Calkins, Equi-

librating Tendencies]; Stephen Calkins, Equilibrating Tendencies in the Antitrust System, with

Special Attention to Summary Judgment and to Motions to Dismiss, in P

RIVATE

A

NTITRUST

L

ITI-

GATION

: N

EW

E

VIDENCE

, N

EW

L

EARNING

185 (Lawrence J. White ed., 1988). The two publica-

tions both derived from a paper I presented at the Georgetown project on private antitrust

litigation and made largely the same points. I will refer to the law review version because it is

more generally accessible. I continue to be grateful to Robert Pitofsky for his role in sponsoring

my participation in such a rewarding project.

2

Calkins, Equilibrating Tendencies, supra note 1, at 1066.

3

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986).

15

82 Antitrust Law Journal No. 1 (2018). Copyright 2018 American Bar Association. Reproduced

by permission. All rights reserved. This information or any por tion thereof may not be copied

or disseminated in any form or by any means or downloaded or stored in an electronic

database or retrieval system without the express written consent of the American Bar

Association.

16

A

NTITRUST

L

AW

J

OURNAL

[Vol. 82

I. A LOOK BACK

My article gave concrete examples of equilibrating tendencies. For in-

stance, a severe penal code will be mitigated by the stretching of rules to favor

defendants, while, in torts, if even trivial negligence on the part of a plaintiff

will bar recovery, courts will strive to avoid injustice by erecting a series of

exceptions.

4

Then, if the stringent substantive law is relaxed, the legal system

can readjust.

Or, to use a competition example, if the simple finding of a vertical agree-

ment to maintain prices automatically results in liability, treble damages, and

attorneys’ fees—regardless of power, regardless of effect, regardless of justi-

fication, and regardless of growing uncertainty about just how harmful resale

price maintenance (RPM) really is—do not be surprised if the legal system

responds by making it incredibly hard to prove an agreement.

5

As my article explained, antitrust offers a host of examples of equilibrating

tendencies at work. Substantive U.S. antitrust simply is different because of

the (un)holy trinity of treble damages, attorneys’ fees, and liberal discovery

(not to mention class actions and jury trials). One can see the influence not

only in substantive but also in procedural law. (Consider, for instance, the

challenge of proving standing and antitrust injury.

6

)

A.

M

ONSANTO

The classic example is provided by Monsanto Co. v. Spray-Rite Service

Corp.

7

It is one of American antitrust’s best-known cases, but the case is

worth reviewing in part to aid non-experts on U.S. law and also in part to

ensure that the words “evidence that tends to exclude the possibility” are fully

appreciated.

In 1977 the Court had relaxed the substantive rules governing vertical re-

straints, making all non-price restraints subject to the rule of reason while

preserving the per se ban on vertical price agreements.

8

(Some Justices—and

the Solicitor General—would have gone further and judged all vertical re-

4

Calkins, Equilibrating Tendencies, supra note 1, at 1067–71, 1075 –79.

5

See id. at 1094.

6

See id. at 1101–04.

7

Monsanto Co. v. Spray-Rite Serv. Corp, 465 U.S. 752 (1984).

8

Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 51 n.18 (1977) (“As in Schwinn,

we are concerned here only with nonprice vertical restrictions. The per se illegality of price

restrictions has been established firmly for many years and involves significantly different ques-

tions of analysis and policy.”). Justice White, concurring, accurately perceived that the Court was

taking a step down a slippery slope because “[i]t is common ground among the leading advocates

of a purely economic approach to the question of distribution restraints that the economic argu-

ments in favor of allowing vertical nonprice restraints generally apply to vertical price restraints

as well.” Id. at 69 (White, J., concurring). He presciently observed that “[t]he effect, if not the

2018]

M

ATSUSHITA

AND

“E

QUILIBRATING

T

ENDENCIES

”

17

straints under the rule of reason.

9

) This meant, according to the Monsanto

Court, that it was “of considerable importance that independent action by the

manufacturer, and concerted action on nonprice restrictions, be distinguished

from price-fixing agreements, since under present law the latter are subject to

per se treatment and treble damages.”

10

And it was important to prevent an

RPM agreement from being inferred “from highly ambiguous evidence.”

What was the “highly ambiguous evidence” that troubled the Court? Evi-

dence that a manufacturer terminated a large

11

discounting dealer

12

after re-

ceiving and “‘in response to’ ” complaints from rival dealers.

13

The evidence

was strong enough that a jury found that plaintiff Spray-Rite was terminated

“‘pursuant to a conspiracy . . . with one or more of [Monsanto’s] distributors

to fix, maintain or stabilize resale prices.’”

14

It was strong enough that the

Seventh Circuit Court of Appeals unanimously affirmed and rehearing en

banc was denied.

15

That court held: “Proof of distributorship termination in

response to competing distributors’ complaints about the terminated distribu-

tor’s pricing policies is sufficient to raise an inference of concerted action.”

16

It pointed to “numerous complaints from competing Monsanto distributors

about Spray-Rite’s price-cutting practices” and testimony by a Monsanto offi-

cial “that Spray-Rite was terminated because of the price complaints.”

17

This was not sufficient for the Supreme Court. “Permitting an agreement to

be inferred merely from the existence of complaints, or even from the fact that

termination came about ‘in response to’ complaints, could deter or penalize

intention, of the Court’s opinion is necessarily to call into question the firmly established per se

rule against price restraints.” Id. at 70.

9

See Monsanto, 465 U.S. at 761 n.7 (“The Solicitor General (by brief only) and several other

amici suggest that we take this opportunity to reconsider whether [agreements] . .. to fix resale

prices should always be unlawful. They argue that the economic effect of resale price mainte-

nance is little different from agreements on nonprice restrictions. They say that the economic

objections to resale price maintenance that we discussed in Sylvania—such as that it facilitates

horizontal cartels—can be met easily in the context of rule-of-reason analysis.... We ... decline

to reach the question, and we decide the case in the context in which it was decided below and

argued here.”) (citations omitted).

10

Id. at 763; see also id. at 764 (“In sum, ‘[t]o permit the inference of concerted action on the

basis of receiving complaints alone and thus to expose the defendant to treble damage liability

would both inhibit management’s exercise of independent business judgment and emasculate the

terms of the statute.’” (alteration in original) (quoting Edward J. Sweeney & Sons, Inc. v. Tex-

aco, Inc., 637 F.2d 105, 111 n.2 (3d Cir. 1980))).

11

“Spray-Rite was the 10th largest out of approximately 100 distributors of Monsanto’s pri-

mary corn herbicide.” Id. at 757.

12

“Spray-Rite was a discount operation, buying in large quantities and selling at a low mar-

gin.” Id. at 756.

13

Id. at 759.

14

Id. at 758 n.2 (quoting special interrogatory).

15

Spray-Rite Serv. Corp. v. Monsanto Co., 684 F.2d 1226 (7th Cir. 1982).

16

Id. at 1239.

17

Monsanto, 465 U.S. at 759.