Leegin as wrecking ball?
Since the Supreme Court struck down an almost century-old rule of per se antitrust liability in Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007),* defense lawyers have tried to turn a single sentence from Leegin into a per-se category killer.
The effort presents high stakes, principally because per se cases have several advantages over their rule-of-reason cousins. The former are simpler, cost millions of dollars less to work up and try, and have greater odds of success with a judge or jury. The per se rule:
- does not require an economist to opine about the relevant product and geographic markets;
- obviates the need to prove that the defendants had market (or monopoly) power or that their conduct was anticompetitive;
- simplifies proof of damages; and
- precludes defendants from claiming, and presenting evidence, that their agreement enhanced competition.
You would expect a kindly hearing from the Fifth Circuit — a court that, despite President Obama’s six years of judicial appointments, still counts twice as many Republican (10) as Democratic (5) appointees in active service. But would the court drink the Kool-Aid?
The court answered on November 25. The panel gave a resounding no.
A boycott of steel
The ruling came in a “group boycott” case, by an upstart steel distributor against incumbent competitors and their steel-making suppliers.
In MM Steel, L.P. v. JSW Steel (USA) Inc., No. 14-20267 (5th Cir. Nov. 25, 2015), the new firm, MM Steel, alleged that steel-makers JSW, Nucor Corporation, and SSAB conspired with several distributors to run MM out of business by refusing to fill its orders. MM settled with SSAB before trial. After six weeks of evidence, it won a verdict against Nucor and JSW. The jury awarded MM damages of $52 million, which the district court trebled, as section 4 of the Clayton Act requires.
On appeal, Nucor and JSW raised two main points, the distributor defendants having settled post-verdict. The steel-makers argued, first, that MM failed to prove that they knowingly joined a conspiracy to boycott MM and, second, that Leegin barred treating vertical facilitators of group boycotts among horizontal competitors of the plaintiff as a per se violators of the Sherman Act.
The Fifth Circuit held that the evidence supported the boycott claim against JSW but not Nucor. No reasonable jury could find, the court ruled, that Nucor did anything more than continue a pre-boycott policy of favoring another steel buyer, Chapel Steel, over a new customer, MM. MM Steel, slip op. at 11-5. Because the evidence showed that JSW agreed to facilitate the distributors’ agreement to isolate MM, the court affirmed the verdict and judgment as to JSW.
Per-se appeal
But the big moment came in the panel’s handling of the per-se versus rule-of-reason question.
A good statement of the defendants’ arguments appears in the dissent by Second Circuit Judge Dennis Jacobs in United States v. Apple Inc., 791 F.3d 290, 346-47 (2d Cir. 2015):**
The [Supreme Court’s] most recent and explicit signal is given in Leegin, which explains that “the Sherman Act’s prohibition on ‘restraints of trade’ evolves to meet the dynamics of present economic conditions,” such that “the boundaries of the doctrine of per se illegality should not be immovable.” 551 U.S. at 899-900 (alterations omitted). Leegin held that a manufacturer did not commit a per se violation of § 1 when it agreed with several retailers on a minimum price that the retailers could charge–a holding that overruled a century-old principle articulated in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911). See Leegin, 551 U.S. at 881. Leegin reasoned that Dr. Miles had “treated vertical agreements a manufacturer makes with its distributors as analogous to a horizontal combination among competing distributors,” but that, “[i]n later cases, . . . the Court rejected the approach of reliance on rules...
