Academic journal article Journal of Corporation Law

Is the Quick-Look Antitrust Analysis in PolyGram Holding Inherently Suspect?

Academic journal article Journal of Corporation Law

Is the Quick-Look Antitrust Analysis in PolyGram Holding Inherently Suspect?

Article excerpt

  I. INTRODUCTION

 II. BACKGROUND
       A. The Per Se Analysis
       B. Development of the Rule of Reason Analysis
       C. Development of Quick-Look Tests under the Rule of Reason
            Analysis
           1. Supreme Court Discussion of the Quick-Look Analysis
           2. Other Examples of the Supreme Court's Treatment of
               Quick-Look Analyses

III. DISCUSSION OF THE RATIONALE AND CONCLUSIONS OF POLYGRAM HOLDING
       A. Commission's and Circuit Court's Analysis
       B. The Quick-Look Analysis and Outcome Were Correct
           1. Commentary on PolyGram Holding by Academics and
                Practitioners
               a. Inherently Suspect Categorization
               b. Rejection of Free Riding Justification
           2. PolyGram's Arguments Were Not Legally Sufficient

IV. RECOMMENDATION

V. CONCLUSION

I. INTRODUCTION

Congress enacted the Sherman Act (1) in 1890 to prohibit restraints of trade and to promote competition. (2) A critical element in the enforcement of the Sherman Act is consistency. With over 100 years of case law history, plaintiffs and defendants in antitrust litigation can normally find and skew case law or dicta to support their positions. Consistency is essential because antitrust litigation is typically very time consuming, detail oriented, and expensive. (3) If the parties to the lawsuit do not know what to expect from the court and what test or rule will apply to them, there will be perverse consequences: private plaintiffs, the Department of Justice, and the Federal Trade Commission ("Commission") may not be willing to bring antitrust lawsuits. (4) Similarly, defendant firms may be less likely to form joint ventures because of the risk that they may be held liable under the Sherman Act and face lengthy and costly lawsuits. The need for a consistent application of a designated rule for a given antitrust situation is clear. (5)

Traditionally, courts have applied the Sherman Act to situations of allegedly anticompetitive behavior in the form of two analyses: per se and rule of reason. (6) But more recently, the traditional dichotomous approach to allegedly anticompetitive behavior has given way with the creation of the "quick-look" (7) analysis. Courts have recognized that many instances of allegedly anticompetitive behavior should be examined under an approach that is neither as harsh as a per se rule analysis nor as in-depth as a rule of reason analysis. (8) Courts have thus created a continuum of rules that are used to analyze "inherently suspect" and "presumptively unlawful" behavior. (9) But confusion remains over which rule a court should apply to a given situation.

In PolyGram Holding Inc. v. Federal Trade Commission, (10) the question of which rule to apply is even murkier. Jose Carreras, Placido Domingo, and Luciano Pavarotti--otherwise known as the Three Tenors--performed concerts together in 1990, 1994, and 1998. (11) PolyGram Holding had notable success distributing the recording of the first concert, and Warner Communications also enjoyed success, though relatively less, distributing the second recording. (12) The companies agreed to distribute jointly the third recording and to consult one another on all marketing and promotional activities. (13) They retained their exclusive rights to the earlier recordings and were not restrained in their ability to promote them. (14) But, the companies were worried that those promotions would weaken sales of the jointly distributed recording because customers might be indifferent between the different recordings, viewing them as substitutes, and buy the recording that is cheapest, which would be one of the earlier recordings and not the jointly distributed recording. (15)

To improve the third recording's sales prospects, the companies agreed to suspend temporarily all price discounting and advertising of the earlier recordings for two and a half months after the release of the new recording. …

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