Academic journal article Journal of Corporation Law

United States V. Dentsply: The Third Circuit Bites Down on the 'Alternative Distribution Channels' Defense

Academic journal article Journal of Corporation Law

United States V. Dentsply: The Third Circuit Bites Down on the 'Alternative Distribution Channels' Defense

Article excerpt

I. INTRODUCTION
II. BACKGROUND

  A. Applicable Law
  B. The History of Dentsply International
  C. Dealer Criterion

    1. Facts
    2. Alternative Distribution Channels
    3. The District Court's Decision

  E. The District Court's Decision Overturned by the Third Circuit

    1. Applicability of Section 2
    2. Alternative Distribution Channels

III. DISCUSSION/ANALYSIS

  A. The Microsoft Case

    1. The Government's Section 1 Claim
    2. Microsoft's Section 2 Argument

B. Section 3 of the Clayton Act

C. An Analysis of Dentsply

    1. The Relevant Market and Foreclosure
    2. Harm to Consumers

      a. "Harm" to Laboratories
      b. "Harm" to Dealers

    3. Length of Agreements with the Foreclosed Dealer s

IV. RECOMMENDATIONS

V. CONCLUSION

I. INTRODUCTION

The United States Congress first passed antitrust laws more than 125 years ago in an effort to protect competition in the marketplace. (1) Protecting competition in the marketplace also helps to protect the consumer, who is meant to be the ultimate beneficiary of antitrust enforcement. (2) Today, three of the principal statutes courts use to achieve that goal are section 3 of the Clayton Act, (3) section 1 of the Sherman Act, (4) and section 2 of the Sherman Act. (5)

In 1999, federal prosecutors charged Dentsply International, a leading manufacturer of dental materials, under all three of these statutes, but in February 2005, Dentsply was ultimately found guilty only of violating section 2 of the Sherman Act. (6) However, several factors in the case could have led the Third Circuit to reach a different conclusion. Part II of this Comment lays out the background leading up to this case, including the applicable law and a brief history of antitrust law, as well as a discussion of some of the key cases that the Third Circuit relied on in reaching its conclusion. Part II also includes the history of Dentsply International, including a look at Dealer Criterion 6, the contractual clause that Dentsply imposed on its dealers that led to the claims of antitrust violations.

Part III of this Comment discusses the case of United States v. Microsoft, in which the software giant was found guilty of violating section 2 of the Sherman Act. (7) In its discussion of Microsoft's alleged violation of section 1 of the Sherman Act, the Microsoft district court held that because there were alternative distribution channels for competitors of Microsoft to market their software, there was no section 1 violation. (8) Part III also looks at how courts have dealt with the presence of alternative distribution channels in section 3 Clayton Act claims. This Comment contends that because courts have treated section 1 Sherman Act and section 3 Clayton Act claims more critically than section 2 Sherman Act claims, analyses done under those claims can be, and should have been, used to guide the analysis in the section 2 claim against Dentsply. Part III concludes with an analysis of the Third Circuit's decision in Dentsply, and reaches the ultimate conclusion that the Third Circuit erred in its decision.

Part IV suggests four steps the Third Circuit should have taken when determining whether Dentsply was guilty of violating section 2. The first step is to define the relevant market and formulate a foreclosure rate, which this Comment contends the Third Circuit properly did. Step two involves determining whether consumers have been significantly harmed by the practices of Dentsply. Based on the factual records presented in the lower court, it appears that the consumers in the Dentsply case suffered little or no injury because of Dentsply's practices. Third, the court must also look at the length of the agreement in question, with shorter agreements being less anticompetitive. Because Dentsply's agreements with dealers were terminable at will, they were, for purposes of antitrust law, theoretically of short duration. …

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