Singing in the shadows of Law: The Three Tenors Case

• Author: Fred S. McChesney
• Date: 01 September 2004
• Published date: 01 September 2004
• DOI: 10.1177/0003603X0404900305
• Subject Matter: Article

The Antitrust Blllletin/Fall 2004

Singing in the shadows

of

law:

the Three Tenors case

BY FRED S. McCHESNEY*

This is the last song

I'll ever sing for you.

I.

Introduction

633

In

1990, three opera

superstars-Jose

Carreras, Placido Domingo and

Luciano

Pavarotti-performed

aconcert at the Baths

of

Caracalla

while Rome hosted the World Cup soccer competition. PolyGram

Holding,

Inc.

bought

the

rights

to

distribute

audio

and

video

recordings of this first Three Tenors concert (3TI), rights that proved

very profitable. Thus, for the 1994 World Cup competition in Los

Angeles. a second Three Tenors concert (3T2) was staged in Dodger

*James B. Haddad Professor, Law School; Professor, Department

of Management &Strategy. Kellogg Graduate School, Northwestern Uni-

versity.

AUTHOR'S

NOTE: Maria Luisa Santa Maria provided valuable research

assistance.

and

the comments

of

James Langenfeld have been very help-

fill. I served as a consultant to the Office

of

the Chairman at the Federal

Trade Commission in connection with the case discussed in this article.

Quite coincidentally. I was at the Champs de Mars

for

the third Three

Tenors

concert

that

led

to

the

case

described

here.

The

opinions

expressed here are mine and do not necessarily reflect those

of

others.

including anyone attending that concert. The quote is from Lawrence W.

Evoy, Last Song (ASCAP). Sung by Edward Bear. the song reached the

number 3position on the Billboard chart in January 1973.

()

~004

by Federal l.egal Publications.Inc.

634 The antitrust bulletin

Stadium,

with

Warner

Communications,

Inc.

acquiring

the

distribution rights.

The

next World

Cup

was

held in Paris in 1998.

PolyGram

and

Warner

Communications,

Inc.

acquired

the rights to distribute the

third Three Tenors (3T3) material as a

joint

venture. However, the two

joint venturers later entered into a side agreement not to advertise or

discount

the

prices

of

the

Three

Tenors material that

each

owned

separately:

3TI

products in the case

of

PolyGram, 3T2 products in the

case

of

Warner.

The

Federal Trade Commission (FTC), in what has

come

to be called the Three Tenors case, ruled that this subsequent

agreement violated antitrust law.'

This

article

explores

certain

aspects

of

the Three Tenors

case,

including

background

to the

Commission's

imposition

of

liability.

Fifteen years before Three Tenors, the Commission had announced in

its Massachusetts Board opinion a new interpretation

of

the antitrust

standard applicable to horizontal restraints.! But the FTC abandoned

the Massachusetts Board standard in later opinions, particularly its ill-

fated California Dental Association case, in which the

Commission's

opinion was ultimately reversed in part by the federal appellate court

and in full by the Supreme

Court.'

Three Tenors

allowed

the

Commission

to revisit its recent past,

and

to

decide

what

standard

ought

to

govern

horizontal restraints.

More

details

about

the

case

are

presented

in the

next

section.

As

then

discussed

in

section

III,

the

Commission

in

Three

Tenors

clearly

restored

the

standard

it

had

enunciated

in

Massachusetts

Board.

In re PolyGram Holding, Inc.,

FIC

Docket No. 9298 (July 24,

2003) [hereinafter Three Tenors].

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

549 (1988). For discussions of the Massachusetts Board opinion, see

Langenfeld &Silvia, Federal Trade Commission Horizontal Restraint

Cases: An Economic Perspective, 61 ANTITRUST L.J. 653,

679-84

(1993);

Langenfeld &Morris, Analyzing Agreements Among Competitors: What

Does the Future Hold? 36 ANTITRUST BULL. 651, 668-74 (1991).

California Dental

Ass'n

v. Federal Trade Commission, 526 U.S.

756 (1999).