Refusal to deal

• Pages: 323-342

CHAPTER VIII

REFUSAL TO DEAL

A. Introduction

This chapter focuses on antitrust issues created when a supplier

terminates or refuses to deal with a competitor. A plaintiff bringing a claim

in this narrow area must show that not only did the defendant (with

monopoly power or pursuant to a conspiracy) refuse to deal, but that doing

so was not economically rational,1 except as a means to harm competition.

Antitrust lawsuits alleging a “refusal to deal” may arise within what is

called the “essential facilities” doctrine. This doctrine provides that it may

be an antitrust violation when an entity with some degree of market power

that controls an “essential” facility or resource refuses to provide

competitors with access to that resource. Under current federal antitrust

law, very few refusals to deal are actionable. A termination or refusal to

deal by one company is litigated primarily under Section 2 of the Sherman

Act.2

Other chapters address antitrust issues created when a supplier

terminates a distributor to enforce an anticompetitive restriction that

improperly lessens the ability of the supplier’s competitors to reach the

market or the ability of its distributors to compete. This chapter examines

an antitrust claim brought against a supplier that improperly lessens the

ability of its competitors to reach the market by denying them access to

the supplier’s own products and services. An added complication arises

when the supplier is refusing to supply or license patented products.

1. As explained more fully below, there is much debate about the most

appropriate test to show that a defendant’s refusal to deal was not

economically rational, except as a means to harm competition.

2. 15U.S.C. § 2 (2012). A refusal to deal pursuant to a conspiracy, such as a

group boycott, has separate and less exacting requirements under § 1 of the

Sherman Act. 15U.S.C. § 1 (2012). The analysis in such cases is whether

the conspiracy existed, rather than of the effects of the refusal to deal.

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324 Antitrust Law and Economics of Product Distribution

B. The Basics of Refusals to Deal

1. An Exception to the General Rule

A unilateral refusal to deal can form the basis for the exclusionary

conduct element of Section 2 of the Sherman Act. Under current law,

however, the circumstances under which that can occur are very limited.

The general rule3 is that antitrust law generally does not prohibit a

competitor from refusing to deal with its competitors.4 This general rule,

however, is not unqualified. This chapter will focus on the exceptions to

the general rule. The refusal-to-deal doctrine, as explained by the Supreme

Court in Verizon Communications v. Law Offices of Curtis V. Trinko,

LLC,5 requires that a monopolist alter its profitable relationship with a

competitor, sacrificing short-term profits, to achieve an anticompetitive

goal.

2. Monopoly Power

The exceptions to the general rule require the supplier to have

monopoly power in the goods and services market that it is refusing to

supply to its competitor. One challenge is to properly define the market in

3. “In the absence of any purpose to create or maintain a monopoly, the

[Sherman] [A]ct does not restrict the long recognized right of trader or

manufacturer engaged in an entirely private business, freely to exercise his

own independent discretion as to the parties with whom he will deal.”

United States v. Colgate & Co., 250U.S. 300, 307 (1919).

4. Id. at 411 (“[W]e do not believe that traditional antitrust principles justify

adding the present case to the few existing exceptions from the proposition

that there is no duty to aid competitors.”). See also Phillip Areeda, Essential

Facilities: An Epithet in Need of Limiting Principles, 58 ANTITRUST L.J.

841, 853 (1989) (“No court should impose a duty to deal that it cannot

explain or adequately and reasonably supervise. The problem should be

deemed irremedial (sic) by antitrust law when compulsory access requires

the court to assume the day-to-day controls characteristic of a regulatory

agency.”).

5. 540 U.S. 398 (2004) (“The unilateral termination of a voluntary (and thus

presumably profitable) course of dealing suggested a willingness to forsake

short-term profits to achieve an anticompetitive end. Similarly, the

defendant's unwillingness to renew the ticket even if compensated at retail

price revealed a distinctly anticompetitive bent.”). Id. at 409 (citation

omitted).