Tying and bundled discounts

A. Introduction
This chapter addresses the law, policy, and economics of tying and
bundled discounts. Tying and bundled discounting are often closely
related practices from a business and economics perspective. They are,
however, analyzed quite differently under the antitrust laws. Tying is
addressed primarily under Section 1 of the Sherman Act, which applies to
concerted action (contracts or combinations in restraint of trade). Bundled
pricing, in contrast, is addressed under Section 2, which applies to
unilateral conduct, specifically monopolization or attempted
monopolization. Tying is one of the oldest doctrines of antitrust law, and
historically was considered one of the more pernicious antitrust violations,
whereas bundled discounting is a relatively novel issue in antitrust law and
generally considered to be anticompetitive only rarely.
A tying arrangement (or a “tie in”) is one in which a seller conditions
the purchase of one product upon the purchase of a second, separate
product. The principal antitrust concern with tying arrangements is that a
seller can in some circumstances leverage power in one market to
foreclose competition in another market. On the other hand, tying
arrangements often are efficiency-enhancing. Thus, jurists and
commentators alike have struggled over time to establish appropriate legal
standards that distinguish tying arrangements that are truly anticompetitive
from those that are not.
A typical bundled discount involves offering the sale of two different
products together at a lower price than the combined prices of the two
products when sold separately. “Bundled discounts are pervasive and
examples abound. Season tickets, fast food value meals, all-in-one home
theatre systemsall are bundled discounts.” 1 A bundled discount is
distinct from a tying arrangement in that the consumer has the option of
1. See Cascade Health Solutions v. Peacehealth, 502F.3d 895, 905 (9th Cir.
164 Antitrust Law and Economics of Product Distribution
buying one or more of the products in the bundle separately; while she
may be enticed by the discount to take the entire bundle, she is able to
purchase less than the entire bundle. While commentators agree that many
bundled discounts are efficient and procompetitive,2 the potential antitrust
concern is similar to that with tying: a seller can in some circumstances
leverage power in one market to foreclose competition in another market.
Currently, the antitrust standard for evaluating bundled discounts is
uncertain; the two federal courts of appeals to address bundled discounts
have taken quite different approaches.
The following sections discuss the competitive concerns and case law
relevant to the treatment of tying and bundled discounts in federal antitrust
law. Section B of this Chapter addresses tying, Section C addresses
bundled discounts, and Section D addresses antitrust injury and damages.
B. Tying
A tying arrangement is “an agreement by a party to sell one product
[the tying product] but only on the condition that the buyer also purchases
a different (or tied) product, or at least agrees that he will not purchase that
product from any other supplier.”3 Tying arrangements may be challenged
under Section 1 of the Sherman Act, Section 3 of the Clayton Act, and
Section 5 of the FTC Act.4 In judicial decisions, the substantive analysis
has been the same under each of those provisions.
Section 1 applies to tying arrangements because the arrangement is
considered a “contract” between the buyer and seller that “satisfies the
concerted action element of section 1.”5
3. Northern Pac. Ry. Co. v. United States, 356U.S. 1, 5-6 (1958).
4. See Ill. Tool Works v. Indep. Ink, 547U.S. 28, 34 (2006) (noting tying
arrangements have been condemned under Section 1 of the Sherman Act,
Section 3 of the Clayton Act, Section 5 of the FTC Act, and under the patent
misuse doctrine).
5. Systemcare, Inc. v. Wang Labs. Corp., 117F.3d 1137, 1140-42 (10th Cir.
1997). (rejecting an argument that tying should be viewed as purely
unilateral conduct: “The essence of section 1’s contract, combination, or
conspiracy requirement in the tying context is the agreement, however
reluctant, of a buyer to purchase from a seller a tied product or service along
with a tying product or service. To hold otherwise would be to read the
words ‘contract’ and ‘combination’ out of section 1.”).
Tying and Bundled Discounts 165
Section 3 of the Clayton Act states that:
It shall be unlawful . . . to lease or make a sale or contract for sale of
goods, wares, merchandise, machinery, suppliers, or other
commodities . . . on the condition, agreement, or understanding that the
lessee or purchaser shall not use or deal in the goods . . . of a
competitor . . . where the effect . . . may be to substantially lessen
competition. . ..6
Section 3 applies only when both the tying and tied products are “goods,
wares, merchandise, machinery, supplies, or other commodities,” thus
tying arrangements involving services and intangibles (e.g., service
contracts, credit, warranties, franchises, and intellectual property licenses)
cannot be challenged under Section 3.7 The limited scope of Section 3,
however, is mostly irrelevant because a tying claim based on goods,
services, and other intangibles may be brought under Section 1 of the
Sherman Act.8
Section 5 of the FTC Act is for the most part coterminous with
Sections 1 and 2 of the Sherman Actalbeit its contours can be somewhat
more expansive—but Section 5 can be enforced only by the FTC.
Tying arrangements may also constitute conduct supporting a claim
for unlawful monopolization (or attempted monopolization) under Section
2 of the Sherman Act, in which case the analysis differs from a Section 1
claim. A Section 2 claim may exist where tying is used to unreasonably
maintain a monopoly position over the tying product, or where tying is
6. 15U.S.C. § 14.
7. See, e.g., Marts v. Xerox, Inc., 77F.3d 1109, 1113 n.6 (8th Cir. 1996)
(classifying warranties as services that are outside the reach of § 3); Advance
Bus. Sys. & Supply Co. v. SCM Corp., 415F.2d 55, 61 (4th Cir. 1969) (“the
sale of SCM paper is tied to SCM service contracts, which do not come
within the terms of the Clayton Act”); Tele Atlas N.V. v. Navteq Corp., 397
F. Supp. 2d 1184, 1192 (N.D. Cal. 2005) (a “patent license” is not within
the scope of § 3).
8. See, e.g., Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466U.S. 2, 24-26
(1984) (anesthesiology services tied to other facilities and services of
hospital); Fortner Enters. v. U.S. Steel Corp., 394U.S. 495 (1969) (Fortner
I) (tying product was favorable credit terms); Northern Pacific, 356 U.S. at
7-8 (railway services tied to land); BookLocker.com v. Amazon.com, 650
F. Supp. 2d 89, 98 (D. Me. 2009) (online sales channel tied to printing

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