Single-Firm Conduct

• Pages: 269-378

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CHAPTER V

SINGLE-FIRM CONDUCT

A. Fundamentals

1. Introduction and Overview

Many of the leading public and private antitrust cases in the

technology sector have involved single-firm conduct challenged under

Section 2 of the Sherman Act. Notable examples include cases against

IBM, Microsoft, Intel, and others. More recently, the Federal Trade

Commission (FTC) has invoked its powers under Section 5 of the FTC

Act to bring and settle single-firm conduct cases against technology

firms, including high-profile settlements with Intel and Google. In

addition, antitrust and competition regimes continue to expand

throughout the world. Like U.S. law, these regimes typically proscribe

certain categories of single-firm conduct deemed “abuse of dominance,”

as it is termed by those countries following the EU model, such as China.

2. United States

a. Sherman Act Section 2

Section 2 makes it unlawful to “monopolize, or attempt to

monopolize, or combine or conspire with any other person or persons, to

monopolize any part of the trade or commerce among the several States,

or with foreign nations.”1 A Section 2 monopolization claim has two

basic elements: “(1) the possession of monopoly power in the relevant

market, and (2) the willful acquisition or maintenance of that power as

distinguished from growth or development as a consequence of a

superior product, business acumen, or historic accident.”2 The mere

possession of monopoly power is not unlawful, unless accompanied by

1. 15 U.S.C. § 2 (2012).

2. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).

270 Handbook on Antitrust in Technology Industries

the additional element of exclusionary conduct.3 A claim of attempted

monopolization has three elements: “(1) that the defendant has engaged

in predatory or anticompetitive conduct with (2) a specific intent to

monopolize and (3) a dangerous probability of achieving monopoly

power.”4

The first element of a Section 2 monopolization claim, the

“possession of monopoly power in the relevant market,”5 requires only

that monopoly power exist, not that it be exercised.6 In the United States,

a single actor’s market share of 65 percent to 70 percent in a cognizable

relevant market generally constitutes compelling evidence of monopoly

power.7 In recent U.S. enforcement actions, the defendants have

substantially exceeded this baseline threshold—for example, Microsoft

had a 95 percent share of an alleged relevant market,8 Intel had 80

percent,9 Rambus had 90 percent,10 and Qualcomm had 90 percent.11

3. Verizon Commc’ns v. Law Offices of Curtis V. Trinko, LLP, 540 U.S.

398, 407 (2004) (asserting that “mere possession of monopoly power, and

the concomitant charging of monopoly prices, is not only not unlawful; it

is an important element of the free-market system,”and in order to

“safeguard the incentive to innovate, the possession of monopoly power

will not be found unlawful unless it is accompanied by an element of

anticompetitive conduct”).

4. Spectrum Sports v. McQuillan, 506 U.S. 447, 455-456 (1993).

5. Grinnell Corp. 384 U.S. at 570. Monopoly power has been traditionally

defined as “the power to control prices or exclude competition,” United

States v. E.I. DuPont de Nemours & Co., 351 U.S. 377, 319 (1956), often

manifesting as the ability of a monopolist to “raise prices substantially

above competitive levels” without a corresponding decrease in demand,

United States v. Microsoft Corp., 253 F.3d 34, 51 (D.C. Cir. 2001).

6. Microsoft Corp., 253 F.3d at 51.

7. See, e.g., Spirit Airlines v. Nw. Airlines, 431 F.3d 917, 935-36 (6th Cir.

2005) (finder of fact can find monopoly power based on evidence of 70-

89 percent market share); Image Technical Servs. v. Eastman Kodak Co.,

125 F.3d 1195, 1206 (9th Cir. 1997) (“Courts generally require a 65

percent market share to establish a prima facie case of market power.”).

By contrast, as discussed below, a market share that permits an inference

of monopoly power is lower in China, Japan, and the European Union.

8. See Microsoft Corp., 253 F.3d at 51.

9. Complaint at 7, Intel Corp., FTC File No. 061-0247 (2010), available at

http://www.ftc.gov/sites/default/files/documents/cases/091216

intelcmpt.pdf.

10. See Rambus Inc. v. FTC, 522 F.3d 456, 459 (D.C. Cir. 2008).

Single-Firm Conduct 271

However, while a dominant share can provide an inference of monopoly

power, it is a rebuttable inference.12 Courts examine the degree to which

firms can maintain monopoly power by considering factors such as

whether competitors face barriers to expansion or entry.13

Attempted monopolization requires proof that the defendant had a

“specific intent to destroy competition or build monopoly.”14 Intent can

be shown through direct evidence or inferred from evidence of

anticompetitive conduct.15

An attempted monopolization claim requires a showing of a

dangerous probability of success in achieving monopoly power, which

may be based on the market structures.16 The existence of barriers to

entry can be powerful circumstantial evidence supporting the required

“dangerous probability” of success in an attempted monopolization

claim.17 Barriers to entry were a crucial factor in FTC v. Intel18 (a Section

5 claim), where the FTC identified four barriers to entry in concluding

that Intel’s 80 percent market share constituted market power:

“(1) product development; (2) the cost and expertise to develop

manufacturing capabilities; (3) intellectual property rights; [and]

(4) establishment of product reputation and compatibility.”19 The

11. See Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 304 (3d Cir.

2007).

12. See Ball Mem’l Hosp. v. Mut. Hosp. Ins., 784 F.2d 1325, 1336 (7th Cir.

1986) (“Market share reflects current sales, but today’s sales do not

always indicate power over sales and price tomorrow.”).

13. See id. at 1335 (“In other cases . . . a firm’s share of current sales does not

reflect an ability to reduce the toal output in the market and therefore it

does not convey power over price. Other firms may be able . . . to divert

production into the market from outside.”).

14. Times-Picayune Publ’g Co. v. United States, 345 U.S. 594, 626 (1953).

15. See E.I. du Pont de Nemours & Co. v. Kolon Indus., 637 F.3d 435, 453

(4th Cir. 2011).

16. See Spectrum Sports v. McQuillan, 506 U.S. 447, 456 (1993).

17. See id. at 455-456; Barr Labs., Inc. v. Abbott Labs., 978 F.2d 98, 112 (3d

Cir. 1992); International Distr. Centers, Inc. v. Walsh Trucking Co., Inc.,

812 F.2d 786, 792 (2d Cir. 1987).

18. Complaint at 13, Intel Corp., FTC File No. 061-0247 (2010), available at

http://www.ftc.gov/sites/default/files/documents/cases/091216

intelcmpt.pdf.

19. Id. at 7.