Tying and bundled discounts
Pages | 163-221 |
CHAPTER V
TYINGANDBUNDLEDDISCOUNTS
A.Introduction
Thischapteraddresses the law,policy,and economics oftying and
bundled discounts. Tyingand bundled discounting areoftenclosely
relatedpracticesfrom a business and economics perspective.Theyare,
however, analyzedquitedifferently under the antitrustlaws.Tyingis
addressedprimarily under Section 1 of the ShermanAct,whichappliesto
concertedaction(contracts or combinations inrestraint of trade). Bundled
pricing, incontrast,isaddressed under Section 2, whichappliesto
unilateralconduct, specificallymonopolization or attempted
monopolization. Tyingisoneoftheoldest doctrines ofantitrustlaw,and
historicallywasconsidered one of the moreperniciousantitrustviolations,
whereas bundled discounting isa relatively novel issueinantitrustlaw and
generally considered to be anticompetitiveonlyrarely.
A tyingarrangement(or a “tiein”)isoneinwhich a seller conditions
the purchase ofoneproduct upon the purchase of a second, separate
product. The principal antitrustconcernwithtying arrangements isthat a
sellercaninsomecircumstancesleverage power inone marketto
foreclosecompetitionin another market.Onthe other hand, tying
arrangementsoftenareefficiency-enhancing. Thus,juristsand
commentators alikehave struggled overtimetoestablishappropriatelegal
standardsthatdistinguish tyingarrangementsthataretrulyanticompetitive
from those thatarenot.
A typicalbundled discount involvesoffering the saleoftwodifferent
products together ata lowerpricethanthe combined pricesof the two
products whensoldseparately. “Bundled discountsarepervasive and
examples abound. Season tickets,fastfoodvaluemeals,all-in-one home
theatresystems—allare bundled discounts.” 1 A bundled discountis
distinctfrom a tyingarrangementinthattheconsumer hasthe optionof
1. SeeCascadeHealthSolutionsv.Peacehealth,502F.3d895,905(9thCir.
2007).
163
164AntitrustLawandEconomicsofProductDistribution
buying one or more of the products inthe bundle separately;whileshe
maybe enticed by the discount totakethe entire bundle, sheisableto
purchaseless than theentire bundle. Whilecommentatorsagreethatmany
bundled discountsareefficientand procompetitive,2 the potential antitrust
concern issimilartothatwithtying: a sellercaninsomecircumstances
leverage power inonemarkettoforeclosecompetitionin another market.
Currently,the antitrust standard for evaluating bundled discountsis
uncertain; thetwofederal courts ofappealstoaddress bundled discounts
havetaken quite different approaches.
The followingsectionsdiscuss thecompetitive concerns and caselaw
relevanttothe treatmentof tying and bundled discountsinfederalantitrust
law.Section B of this Chapter addressestying,Section C addresses
bundled discounts, and Section D addressesantitrustinjury and damages.
B.Tying
A tyingarrangementis“anagreement by a partytosellone product
[the tying product] butonly on the condition thatthebuyeralsopurchases
a different (ortied) product, or atleastagreesthathewillnotpurchasethat
product from any other supplier.”3Tyingarrangementsmay be challenged
under Section 1 oftheShermanAct,Section 3 oftheClaytonAct,and
Section 5 oftheFTCAct.4Injudicialdecisions,the substantiveanalysis
has beenthesame under each of those provisions.
Section 1 appliestotyingarrangementsbecausethearrangementis
considered a “contract”betweenthe buyer and seller that “satisfiesthe
concertedactionelement of section 1.”5
2. Seeid. at906n.6; ANTITRUSTMODERNIZATIONCOMMISSION, REPORTAND
RECOMMENDATIONS95(2007).
arrangementshavebeencondemnedunderSection 1 oftheShermanAct,
Section 3 oftheClaytonAct,Section 5 oftheFTCAct,andunderthepatent
misusedoctrine).
1997).(rejectinganargumentthattyingshouldbeviewedaspurely
unilateralconduct:“Theessenceofsection1’scontract,combination,or
conspiracyrequirementinthetyingcontextistheagreement, however
reluctant,of a buyertopurchasefrom a seller a tiedproductorservicealong
with a tyingproductorservice.Toholdotherwisewouldbetoreadthe
words‘contract’and‘combination’outofsection1.”).
TyingandBundledDiscounts165
Section 3 of the ClaytonActstatesthat:
Itshallbeunlawful . . . toleaseormake a saleorcontractforsaleof
goods,wares,merchandise,machinery,suppliers,orother
commodities . . . onthecondition,agreement,orunderstandingthatthe
lesseeorpurchasershallnotuseordealinthegoods . . . ofa
competitor . . . wheretheeffect . . . maybetosubstantiallylessen
competition. . ..6
Section 3 appliesonlywhen both thetying and tiedproducts are “goods,
wares,merchandise,machinery,supplies, or other commodities,” thus
tyingarrangements involving servicesandintangibles (e.g., service
contracts,credit,warranties,franchises, and intellectualproperty licenses)
cannot be challenged under Section 3.7ThelimitedscopeofSection3,
however, ismostlyirrelevantbecause a tyingclaimbased on goods,
services,and otherintangibles may be brought under Section 1 of the
ShermanAct.8
Section 5 oftheFTCActis for themostpart coterminous with
Sections 1 and 2 of theShermanAct—albeititscontourscan be somewhat
more expansive—but Section 5 can be enforced only by the FTC.
Tyingarrangementsmayalsoconstitute conduct supporting a claim
for unlawful monopolization (or attempted monopolization) under Section
2 of the ShermanAct, in whichcase the analysisdiffersfrom a Section 1
claim. A Section 2 claimmayexistwheretyingisusedto unreasonably
maintain a monopoly position over the tying product, or wheretyingis
6. 15U.S.C. § 14.
7. See,e.g.,Martsv.Xerox,Inc.,77F.3d1109,1113n.6(8thCir.1996)
(classifyingwarrantiesasservicesthatareoutsidethereachof § 3);Advance
Bus.Sys. & SupplyCo.v.SCMCorp.,415F.2d55,61(4thCir.1969)(“the
saleofSCMpaperistiedtoSCMservicecontracts,whichdonotcome
withinthetermsoftheClaytonAct”);TeleAtlasN.V.v.NavteqCorp.,397
F.Supp.2d1184,1192(N.D.Cal.2005)(a“patentlicense”isnotwithin
thescopeof § 3).
(1984)(anesthesiologyservicestiedtootherfacilitiesandservicesof
hospital);FortnerEnters.v.U.S.SteelCorp.,394U.S.495(1969) (Fortner
I) (tyingproductwasfavorablecreditterms);NorthernPacific, 356U.S.at
7-8 (railwayservicestiedtoland);BookLocker.comv.Amazon.com,650
F.Supp.2d89,98(D.Me.2009)(onlinesaleschanneltiedtoprinting
services).
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