The Commerce Requirement in Tying Law

• Author: Christopher R. Leslie
• Position: Chancellor's Professor of Law, University of California Irvine School of Law
• Pages: 2135-2160

The Commerce Requirement in Tying Law Christopher R. Leslie  I. INTRODUCTION ........................................................................... 2136 II. THE ORIGINAL FUNCTION OF THE COMMERCE ELEMENT IN TYING LAW ............................................................................................. 2137 A. T HE L EGAL T EST FOR I DENTIFYING W HICH T YING A RRANGEMENTS A RE A NTICOMPETITIVE .......................................................... 2137 B. T HE C OMMERCE R EQUIREMENT AND D ISTINGUISHING A NTICOMPETITIVE T YING A RRANGEMENTS ............................. 2140 C. P ROBLEMS WITH U SING D OLLAR V OLUME AS A P ROXY FOR A NTICOMPETITIVE E FFECTS .................................................... 2142 III. THE EVOLUTION OF THE COMMERCE ELEMENT ......................... 2144 A. T HE J URISDICTIONAL I NQUIRY IN T YING C LAIMS ..................... 2145 B. T HE C OMMERCE E LEMENT B ECOMES J URISDICTIONAL ............ 2146 C. O NE E LEMENT , S EVERAL V ARIATIONS ..................................... 2149 D. T HE I MPLICATIONS OF — AND THE A RGUMENT A GAINST — A J URISDICTIONAL I NTERPRETATION OF THE C OMMERCE E LEMENT .............................................................................. 2153 IV. FIXING THE COMMERCE ELEMENT .............................................. 2156 A. E XAMINE C OMPETITIVE E FFECTS D IRECTLY ............................ 2156 B. E LIMINATE THE P ER S E L ABEL ............................................... 2158 C. I NTERSTATE C OMMERCE AS A S EPARATE E LEMENT .................. 2160 V. CONCLUSION .............................................................................. 2160  Chancellor’s Professor of Law, University of California Irvine School of Law. The author thanks Herbert Hovenkamp and Tony Reese for comments on earlier drafts. 2136 IOWA LAW REVIEW [Vol. 100:2135 I. INTRODUCTION Courts condemn tying arrangements based on the assumption that firms are leveraging their market power in one market (the “tying product market”) in order to monopolize a second market (the “tied product market”). 1 A tying arrangement exists when a seller refuses to sell one product (the “tying product”) unless the buyer also agrees to purchase another separate product (the “tied product”). Tying arrangements may potentially injure competition in numerous ways. 2 For example, a tying seller may employ a tie-in to suppress competition in the market for the tied product. 3 Tying arrangements may also create a barrier to entry into the tying product market. 4 Absent proof of a legitimate purpose for the tying arrangement that cannot be achieved through less restrictive means, scholars have long argued that “it is a reasonable assumption that the purpose of the seller in using a tie-in is to restrain competition in the tied product.” 5 The Supreme Court famously asserted in Standard Stations that “[t]ying agreements serve hardly any purpose beyond the suppression of competition.” 6 Historically, the fear that tying arrangements were almost inherently anticompetitive led courts to condemn some tying arrangements as per se illegal. 7 Despite decades of scholarship and hundreds of published opinions, tying law remains a confusing and controversial area of antitrust jurisprudence. 8 This Essay focuses on the least controversial element: that a 1. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 14–15 (1984); Christopher R. Leslie, Cutting Through Tying Theory with Occam’s Razor: A Simple Explanation of Tying Arrangements , 78 TUL. L. REV. 727, 732–36 (2004). 2. See Christopher R. Leslie, Tying Conspiracies , 48 WM. & MARY L. REV. 2247, 2260–76 (2007). 3. N. Pac. Ry. Co. v. United States, 356 U.S. 1, 11 (1958) (“[T]he vice of tying arrangements lies in the use of economic power in one market to restrict competition on the merits in another . . . .”); Kurt A. Strasser, An Antitrust Policy for Tying Arrangements , 34 EMORY L.J. 253, 267 (1985). 4. See Christopher R. Leslie, Patent Tying, Price Discrimination, and Innovation , 77 ANTITRUST L.J. 811, 843–44 (2011). 5. Donald F. Turner, The Validity of Tying Arrangements Under the Antitrust Laws , 72 HARV. L. REV. 50, 62 (1958). 6. Standard Oil Co. of Cal. v. United States, 337 U.S. 293, 305–06 (1949). 7. See Int’l Salt Co. v. United States, 332 U.S. 392, 396 (1947). 8. See generally Rebecca Haw Allensworth, The Influence of the Areeda–Hovenkamp Treatise in the Lower Courts and What It Means for Institutional Reform in Antitrust , 100 IOWA L. REV. 1919(2015); Roger D. Blair & Christine Piette Durrance, Licensing Health Care Professionals, State Action and Antitrust Policy , 100 IOWA L. REV. 1943 (2015); Roger D. Blair & D. Daniel Sokol, Quality-Enhancing Merger Efficiencies , 100 IOWA L. REV. 1969 (2015); John M. Connor & Robert H. Lande, Not Treble Damages: Cartel Recoveries Are Mostly Less Than Single Damages , 100 IOWA L. REV. 1997 (2015); Daniel A. Crane, All I Really Need to Know About Antitrust I Learned in 1912 , 100 IOWA L. REV. 2025 (2015); Keith N. Hylton, Deterrence and Antitrust Punishment: Firms Versus Agents , 100 IOWA L. REV. 2069(2015); William E. Kovacic & Marc Winerman, The Federal Trade Commission as an Independent Agency: Autonomy, Legitimacy, and Effectiveness , 100 IOWA L. REV. 2085 (2015); Mark A. Lemley & Christopher R. Leslie, Antitrust Arbitration and Illinois Brick, 100 IOWA L. REV. 2115 2015] THE COMMERCE REQUIREMENT IN TYING LAW 2137 substantial volume of commerce in the tied product market be affected by the tie-in. An examination of this element demonstrates a flaw in current tying law. Depending on how the commerce element is articulated, it serves either a substantive or a jurisdictional function, or both. However, courts are neither particularly clear nor consistent in how they are using the element. This ambiguity makes the element difficult to understand and apply. By exposing the awkward evolution of the commerce element and its current duality, this Essay attempts to make this relatively non-controversial element more controversial. II. THE ORIGINAL FUNCTION OF THE COMMERCE ELEMENT IN TYING LAW A. T HE L EGAL T EST FOR I DENTIFYING W HICH T YING A RRANGEMENTS A RE A NTICOMPETITIVE Not all tying arrangements necessarily injure competition. Scholars associated with the Chicago School have argued that firms may use tying arrangements to effect price discrimination in a manner that expands output of the tying product. 9 Other scholars and judges have reasoned that some sellers have imposed tying requirements to protect an infant industry, 10 to protect goodwill by insuring that only high-quality complementary goods are used with the seller’s tying product, 11 or simply to increase their sales of the tied product at competitive prices. 12 No universal explanation can describe all tying arrangements, their purposes and effects. 13 The objective of tying law should be to distinguish those tying arrangements that injure competition from those that do not. When evaluating alleged restraints of trade, courts generally employ one of two tests: the per se rule or the Rule of Reason. 14 Under the per se rule, courts presume (2015); Alan J. Meese, Antitrust Federalism and State Restraints of Interstate Commerce: An Essay for Professor Hovenkamp , 100 IOWA L. REV. 2161 (2015); Barak Orbach, The Durability of Formalism in Antitrust , 100 IOWA L. REV. 2197 (2015); Spencer Weber Waller & Matthew Sag, Promoting Innovation , 100 IOWA L. REV. 2223 (2015). 9. See, e.g. , M.L. Burstein, A Theory of Full-Line Forcing , 55 NW. U. L. REV. 62, 64 & n.6 (1960); Alan J. Meese, Tying Meets the New Institutional Economics: Farewell to the Chimera of Forcing , 146 U. PA. L. REV. 1, 26–28 (1997). 10. See, e.g. , United States v. Jerrold Elecs. Corp., 187 F. Supp. 545, 557 (E.D. Pa. 1960), aff’d per curiam , 365 U.S. 567 (1961). 11. See Mozart Co. v. Mercedes-Benz of N. Am., Inc., 833 F.2d 1342, 1348–50 (9th Cir. 1987); see also Richard S. Markovits, Tie-Ins and Reciprocity: A Functional, Legal, and Policy Analysis , 58 TEX. L. REV. 1363, 1382–83, 1436 (1980). 12. See Leslie, supra note 1, at 759–62. 13. Id. at 749; see also Louis Kaplow, Extension of Monopoly Power Through Leverage , 85 COLUM. L. REV. 515, 539 (1985). 14. “Quick look” analysis—also called “abbreviated” or “truncated” Rule of Reason— provides a third mode of analysis. Cal. Dental Ass’n v. Fed. Trade Comm’n, 526 U.S. 756, 763 (1999). Because courts have not yet applied the “quick look” approach in tying cases, this Essay will not discuss the abbreviated Rule of Reason. 2138 IOWA LAW REVIEW [Vol. 100:2135 anticompetitive effects. In general, antitrust law’s per se rule relieves the plaintiff from having to prove anticompetitive effects. 15 The Supreme Court has long noted that a tying plaintiff does not have to prove actual anticompetitive effects. 16 For example, the Supreme Court has twice cited International Salt for the proposition that it is “deemed irrelevant that there was no evidence as to the actual effect of the tying clauses upon competition.” 17 Once the elements of a tying claim are established, “tying arrangements are illegal in and of themselves, without any requirement that the plaintiff make a showing of unreasonable competitive effect.” 18 Courts do “not consider whether competition was in fact unreasonably restrained.” 19 After the elements are shown, the “ anticompetitive effects will be presumed. ” 20 In contrast, under the Rule of Reason, the plaintiff must use evidence to prove anticompetitive effects. Although the Supreme Court has opined that tying arrangements are per se illegal, it has not articulated a single, clear legal test for this per se illegality. Instead, in its tying opinions, the Court has discussed several necessary components of antitrust liability for imposing a tiein. Circuit courts have converted the Supreme Court’s tying jurisprudence into a traditional element-driven test. Many, but not most, federal...