Sherman Act Section 2 Committee Hot Topics in Monopolization Law “Section 2 in the Antitrust Division” J. Bruce McDonald March 31, 2005 UNITED STATES DEPARTMENT OF JUSTICE ANTITRUST DIVISONDIVISION

Section 2 Hot Topics Your Panel Bruce McDonald, DOJ – Section 2 in a Second Bush Administration Aryeh Friedman, Program Chair – Trinko impact on price squeeze claims Paul Hewitt, Akin Gump – How to exclude competitors using category management Ken Glazer, The Coca-Cola Company – Worries of the dominant firm in the US and EU Mary Anne Mason, Hogan & Hartson – EU takes on Microsoft

Section 2 Hot Topics DOJ Antitrust Division Enforcement Hierarchy Criminal cartel conduct Mergers Civil violations of Sherman Act §§ 1 and 2

Section 2 Hot Topics DOJ Antitrust Division Section 2 Enforcement Harms from monopolization demand vigorous enforcement Objective standards maintain balance and limit harm from unwarranted challenges Section 2 caution justified by difficulty in distinguishing procompetitive and anticompetitive behavior

Section 2 Hot Topics U.S. v. Dentsply Court Decisions District Court Findings: Dentsply market share enough to infer monopoly power Dentsply a price leader Dentsply enforced exclusivity policy solely to exclude competitors But for Dentsply exclusivity policy, prices would be lower Dentsply justifications “pretextual” Judgment for Dentsply What happened?

Section 2 Hot Topics U.S. v. Dentsply Court Decisions Additional District Court finding: Direct sales a viable method of distribution No monopoly. No maintenance. No violation.

Section 2 Hot Topics U.S. v. Dentsply Court Decisions (1) Monopoly power (2) Willful maintenance

Section 2 Hot Topics U.S. v. Dentsply Court Decisions (1)Monopoly Power District Court: High market share may ordinarily raise an inference of monopoly power But not where there is evidence of a defendant’s inability to control prices or exclude competitors –Dentsply could not exclude because “direct selling to the laboratories is a viable …method of distribution”

Section 2 Hot Topics U.S. v. Dentsply Court Decisions (1) Monopoly Power Appeals Court: Monopoly power may be inferred from a predominant share of the market But the ability to maintain market share is what counts –Market reality – Direct sales not a practical alternative –Market reality – Rivals could theoretically convince dealers to drop Dentsply, but that has not happened

Section 2 Hot Topics U.S. v. Dentsply Court Decisions (2) Willful Maintenance District Court: No exclusionary conduct – “[B]ecause direct distribution is viable, non-Dentsply dealers are available, and Dentsply dealers may be converted at any time, the DOJ has failed to prove that Dentsply’s actions have been or could be successful in preventing ‘new or potential competitors from gaining a foothold in the market.’”

Section 2 Hot Topics U.S. v. Dentsply Court Decisions (2) Willful maintenance Appeals Court: “The proper inquiry is not whether direct sales enable a competitor to ‘survive’ but rather whether direct selling ‘poses a real threat’ to defendant’s monopoly.” U.S. v. Microsoft, 253 F.3d 34, 71 (D.C. Cir. 2001). –Small shares of competitors show that direct selling not viable –Many labs prefer to buy through dealers –Exclusivity “created a strong economic incentive for dealers to reject competing lines in favor or Dentsply’s teeth”

Section 2 Hot Topics U.S. v. Dentsply Court Decisions Appeals Court: Reversed and rendered

Section 2 Hot Topics U.S. v. Dentsply Importance of Dentsply Importance for Section 2 enforcement Focus on market realities important under balanced Section 2 standards Microsoft “significant contribution” standard demands real competition Declined to follow old, tired, distinguishable exclusive dealing cases

Section 2 Hot Topics DOJ Antitrust Division Future of Section 2 Enforcement At DOJ Follow “no economic sense” standard Prosecute violations vigorously Clarify standards

Section 2 Hot Topics DOJ Antitrust Division Future of Section 2 Enforcement DOJ study recommendations to Antitrust Modernization Commission Be cautious about changing statutory language Do Section 2 treble damages deter anticompetitive conduct or procompetitive conduct?

Sherman Act Section 2 Committee Hot Topics in Monopolization Law “Section 2 in the Antitrust Division” J. Bruce McDonald March 31, 2005 UNITED STATES DEPARTMENT OF JUSTICE ANTITRUST DIVISONDIVISION