Now that Judge Alito is Justice Alito, many have asked what impact, if any, may be prophesized for the resolution of antitrust and other competition based matters before the United States Supreme Court. While Judge Alito served on the United States Court of Appeals for the Third Circuit from 1990 to January 31, 2006, he has been involved in but a sparse number of antitrust and competition related matters.

Nevertheless, a review of the reported decisions in which he has taken part reveals an impressive fluency with modern antitrust economic thought. A review of his antitrust and antitrust related matters demonstrates a close allegiance to the principles of antitrust standing, and the “prudential standing” factors of Associated Gen. Contractors of Cal, Inc. v. California State Council of Carpenters.¹ In particular, several of his opinions disclose a high regard for the standing factors as driving the outcome of a given case. These factors include whether there is a causal connection between the antitrust violation and the injury to the plaintiff, whether the injury was intended, or was consequential, whether the plaintiff is a consumer or a competitor in a properly defined relevant market, the relative directness of the injury, whether the claimed damages would be speculative, whether there is a potential for duplicative recovery, and whether apportioning damages would render the matter overly complex. Finally, “prudential standing”, according to Judge Alito, tests whether there are more direct victims of the claimed antitrust conduct, that would be able to vindicate the public policy favoring the deterrence of future antitrust violations.

A quick review of the matters in which Judge Alito has participated follows:

1.Ralph J. Miller, M.D. v. Indiana Hospital, et al., 930 F.2d 344 (3d Cir. 1991). Here, a surgeon brought an action against a hospital and its medical and administrative staff, after the hospital revoked his staff privileges. The action is brought pursuant to Section 1 of the Sherman Act. The District Court had granted summary judgment in favor of defendants based upon the antitrust immunity doctrine of Parker v. Brown.² The Court of Appeal reversed and remanded. Upon remand, however, the District Court again granted summary judgment, and upon the same ground. On appeal, the Third Circuit, in an opinion written by Judge Alito, reversed. After a lengthy discussion of the elements of antitrust immunity pursuant to Parker, the court held that while the record satisfied the “clear articulation” prong of Parker, there was no showing that there had been “active supervision” by the State of Pennsylvania. Accordingly, the Pennsylvania peer review procedure at issue in the case was not immune from antitrust challenge.

Judge Alito further held that whether conduct qualifies as “state action” for purposes of antitrust immunity is a question of law, and that the Court’s review is plenary.

2.TICOR Title Insurance Company v. Federal Trade Commission, 998 F.2d 1129 (3d Cir. 1991). The Federal Trade Commission determined that an agreement among title insurers to collectively establish rates was a violation of Section 5 of the Federal Trade Commission Act. The Court of Appeals for the Third Circuit denied enforcement of the FTC order, and reversed. The Supreme Court, upon a grant of a petition for certiorari, reversed and remanded. On remand, the Court of Appeal held that the collective establishment of rates among competing title insurance companies was not immune from the McCarran-Ferguson Act, as the “business of insurance”. Nor, was the Noerr-Pennington doctrine applicable, as the collective agreements were not entered into for the purpose of influencing legislative, judicial or administrative action. In addition, the Court of Appeal held that the antitrust immunity doctrine of Parker v. Brown was inapplicable, as neither the states of Arizona or Connecticut “actively supervised” rate setting schemes.

Judge Alito filed a dissenting opinion stating that “the setting of uniform rates for title search and examination services is part of the “business of insurance” within the meaning of … (the) McCarran-Ferguson Act.”³ He reasoned that the search and examination of title records was an integral part of the issuance of insurance policies, which has the effect of transferring and spreading a policyholder’s risk. This, he held, was “an integral part of the policy relationship between the insurer and the insured,” and thus within the doctrine of the “business of insurance”.

3.In Re Lower Lake Erie Iron Ore Antitrust Litigation, 998 F.2d 1144 (3d Cir. 1993). In this action, the Court of Appeals for the Third Circuit affirmed in part, reversed in part, and remanded, a jury verdict finding that the defendant railroads, who were serving the lower Lake Erie industrial region, conspired to exclude potential competitors from entering the market for lake transport, dock handling, and storage and land transport for iron ore. On appeal, the railroads argued that the conduct complained of as violative of the antitrust laws was exempt from liability pursuant to the “filed rate” doctrine of Keogh v. Chicago & Northwestern Railway.⁴ They also argued that certain of the plaintiffs lacked standing under Illinois Brick ⁵, and pursuant to Associated Gen. Contractors.⁶

The Court of Appeals affirmed as to the application of the Keogh doctrine. It concluded that the district court was correct in characterizing the anticompetitive activity as market preclusion, and that therefore, Keogh‘s protective rule was inapplicable. The preclusion of entry by potential competitors was not within the antitrust immunity doctrine relating to the immunity of ICC-approved rates, as the conduct in issue was non-rate anticompetitive activity. As to the Illinois Brick claim, the Court of Appeals held that the ownership of the loading vessels by the railroads invoke to the “direct cost” exception of Illinois Brick for cost related pass-through activities.

As to the claim under Associated Gen. Contractors, the Court of Appeals held that on balance, the factors supported standing, as the claims were sufficiently direct, and did not represent simply “umbrella” pricing pursuant to the doctrine of Mid-West Paper.⁷

Several defendants petitioned for rehearing and rehearing en banc. The petition was denied. Judges Alito, Becker and Stapleton would have granted rehearing.

4.Lerman v. Joyce International, Inc., 10 F.3d 106 (3d Cir. 1993). Here, a former employee brought an action for breach of contract against the buyer of a business. The buyer counterclaimed for alleged violations of federal and state RICO statutes, and the breach of a severance agreement. The District Court for the District of New Jersey entered a consolidated judgment finding the buyer liable for breach of the severance agreement, and against the employee on the RICO counterclaims. Both appealed. Writing for a three judge panel, Judge Alito affirmed. The Court held that the buyer was not barred from recovering on the RICO claims, as he was the express assignee of the claims from the seller of the business.

Judge Alito analogized the factual scenario to the “direct purchaser” rule of Illinois Brick.⁸ Citing Goldstream III Associates, Inc. v. Goldstream Aerospace Corp.,⁹ he held that an assignment of a claim under Section 4 of the Clayton Act served as a model for a determination whether a RICO claim had been expressly assigned. Absent a valid assignment, the “direct purchaser” rule of Illinois Brick would preclude standing. Here, all claims were assigned, and the assignment was sufficiently “express” to confer RICO standing.

5.Barton & Pittinos, Inc. v. SmithKline Beecham Corp., 118 F.3d 178 (3d Cir. 1997). Plaintiff, a pharmaceutical marketing company, entered into a contract with SmithKline Beecham Corp. (“SKB”) to market a hepatitis-B vaccine to nursing homes. Plaintiff would provide the nursing homes with information about the vaccine and would then solicit orders. B&P would then pass the orders on to General Injectables and Vaccines, Inc. (“GIV”) who in turn, would buy the vaccine from SKB and then resell it to the nursing homes. Plaintiff would then receive a commission on the sale. Plaintiff, however, at no time actually purchased vaccine or sold the vaccine to nursing homes. Allegedly, a group of pharmacists put pressure on SKB to terminate the program, thus, allegedly injuring plaintiff by engaging in a concerted refusal to deal, thus restraining competition in the market for the sale of hepatitis-B vaccines to nursing homes.

The District Court granted summary judgment on the Section 1 claim on the ground that plaintiff lacked standing to sue. The Court of Appeals for the Third Circuit, with Judge Alito writing the opinion of the court, affirmed. In a detailed analysis of Associated Gen. Contractors,¹⁰ the Court held that the plaintiff was “neither a consumer nor a competitor in the market in which trade was restrained”, and thus the restraint was not an injury of the type that the antitrust laws were designed to prevent. In addition, Judge Alito wrote that while a different plaintiff might be able to sue under the antitrust laws, this particular plaintiff had no standing, pursuant to Brunswick.¹¹ The fact that the pharmacists considered the plaintiff to be a direct competitor was not sufficient to obviate lack of standing. Quoting Brown Shoe¹² Judge Alito wrote:

“The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.”

Here, there was no cross-elasticity of demand between any offerings made by the pharmacists and the plaintiff. No matter how much the pharmacists might raise the price of the package of good and services, the nursing homes could not have switched to the plaintiff for the purchase of cheaper hepatitis-B vaccine.

Judge Alito thereby concluded, on behalf of the panel, that the plaintiff did not compete with the pharmacists in the market for the packaging and distribution of hepatitis-B vaccine to nursing homes. As it was not a competitor or a consumer in the market in which trade was allegedly restrained by the antitrust violation alleged in the complaint, the plaintiff had not suffered “antitrust injury”.

Because the plaintiff failed the “antitrust injury” requirement, the court held that it was unnecessary to make a more detailed analysis of the other Associated Gen. Contractors factors.¹³

6.Conte Bros. Automotive, Inc. v. Quaker State-Slick 50, Inc., 165 F.3d 221 (3d Cir. 1998). Here, a retailer of engine additives sued the manufacturers of competing products for false advertising, pursuant to Section 43(a) the Lanham Act. The United States District Court for the District of New Jersey dismissed the complaint for lack of standing under the Lanham Act.

On appeal, Judge Alito wrote for the court and affirmed. In an exhaustive examination of the relationship between Lanham Act and antitrust standing, the court held that the plaintiff lacked “prudential standing”, and had thus failed to satisfactorily allege “competitive injury.”

The Court held that while it was not possible to fashion an across the board standing rule, considerations falling within the “general rubric of prudential standing”, demonstrated that here, standing was lacking. Again, he cited to Associated Gen. Contractors,¹⁵ and focused his analysis on the factors discussed therein by the Supreme Court. He held that in Associated Gen. Contractors, the Supreme Court had held that Congress had specifically incorporated “prudential standing” principles to determine whether a person had been injured in his “business or property”, in order to invoke standing to sue under Section 4 for the Clayton Act. While harm to a given antitrust plaintiff may be sufficient to satisfy “constitutional standing” requirements of injury in fact, Associated Gen. Contractors requires that the court make a further determination whether the plaintiff is a “proper party” to bring a private antitrust action, and thus incentivise enforcement of the antitrust laws by “so called private attorneys general”. Judge Alito identified and discussed in detail the other standing factors under Associated Gen. Contractors, including whether the plaintiff’s alleged injury was of a type that Congress sought to redress in providing a private remedy for violations of the antitrust laws, whether the injury was sufficiently direct, whether the party asserting standing was proximate or remote, whether the damages claims would be speculative, and finally, whether the risk of duplicative damages or complexity in apportioning damages would warrant a conclusion that the plaintiff was not a “proper party.”

7.Joint Stock Society v. UDV North America, Inc., 266 F.3d 164 (3d Cir. 2001). Here, a Russian vodka producer sued an American vodka distiller for false designation of origin, false advertising, and for trademark cancellation under Lanham Act. The District Court for the District of Delaware dismissed the action for lack of subject matter jurisdiction. On appeal, Judge Alito, writing for the Court held that plaintiff lacked “constitutional standing” to sue under the Lanham Act, and that further the plaintiff lacked “prudential standing” as well, based upon an analogue to Associated Gen. Contractors. The Associated Gen. Contractors analysis is substantially the same as that set forth in Conte Brothers Automotive, discussed above.

While the defendants may have indeed engaged in false advertising and a false designation of origin, plaintiff could not have suffered injury, as at no time, did it sell or intend to sell vodka within the United States.

8.LePage’s, Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003).¹⁶ This was an action by LePage’s against 3M for monopoly power maintenance, under Section 2 of the Sherman Act. 3M manufactures “Scotch” brand transparent tape, as well as an extensive line of other products for home and office use. Until the early 1990’s, it had maintained a market share of over 90% of the domestic transparent tape market, which the parties agreed was the appropriate relevant market. Thus, it was undisputed that 3M was a monopolist in a properly defined market.¹⁷

LePage’s entered the transparent tape market in the early 1980’s. Its business strategy was to sell a “second brand” of transparent tape as well as a private label line. By the early 1990’s, LePage’s had accounted for almost 90% of the sale of private label tape. At the same time, however, the demand for private label tape had substantially increased with the growth of office superstores and large retailers, including Office Depot, Staples, K-Mart and Wal-Mart.

3M devised a business strategy of offering a series of interrelated “bundled rebates”, conditioned upon customers purchasing across the entire line. Customers were given targeted growth rates for each product line within the group of bundled products. The more targets the customer met, the larger the aggregate rebates. After a lengthy jury trial, the jury found for LePage’s on the Section 2 monopolization and attempted monopolization claim, and damages were trebled to in excess to $68 million.

A panel of the Third Circuit, in which Judge Alito voted with the majority, reversed, and remanded. As each of the discounts within the package of discounts was above an appropriate measure of cost, 3M could not be found to have engaged in “predatory pricing” within the meaning of Brooke.¹⁸

An en banc Court, however, reversed, and held 7-3 that 3M had “used its market power over transparent tape, backed by a considerable catalogue of products to entrench its monopoly to the detriment of LePage’s, its only serious competitor, in violation of Section 2 of the Sherman Act”.¹⁹

The en banc Third Circuit panel began its analysis by reviewing the general principles of Section 2 monopolization cases, from Alcoa,²⁰ American Tobacco²¹ and continuing through Grinnell²² and Aspen Skiing Co.²³

The Third Circuit framed the issue as whether 3-M had “willfully … maintained its monopoly power . . . by competing on some basis other than the merits.”²⁴ To 3-M, and to the dissenting judges, of which Judge Alito was a member, the issue was whether Brooke was controlling, and whether there could ever be a scenario whereby above cost selling by an admitted monopolist could violate Section 2, no matter how exclusionary the conduct might be. The majority found that 3-M had engaged in a “panoply” of exclusionary conduct all related to its pricing strategy. The court held that the case was not so much a case of “predatory pricing,” so much as a case relating to anticompetitive effects similar to a tie.

In a dissent authored by Judge Greenberg, and joined by Judge Alito, the Court reasoned that Brooke was controlling, and that there should be a strong presumption in favor of pricing conduct that transferred producer rents to consumers, in the form of lower, but above cost prices.

The majority’s analysis, namely that this is the case of a “panoply” of exclusionary acts, is substantially similar to the Third Circuit’s decision in United States v. Dentsply International, Inc., decided in February 2005.²⁵ In Dentsply, the Court held that defendant had violated Section 2 of the Sherman Act by unlawfully maintaining its market position by the use of exclusive dealing contracts, that denied efficient scale economies to incumbents at the margins, and to new entrants. The Court held that through the use of exclusive dealing arrangements, Dentsply was able to maintain a monopoly position for an extended period of time, and was able to prevent entry into “gateway” dealers by precluding Dentsply dealers from adding new competitive toothlines that could constrain Dentsply’s pricing abilities. This was so notwithstanding the fact that Dentsply was a price leader in the industry, and produced umbrella effects generally, stabilizing or raising prices throughout the relevant market.

Dentsply, as does LePage’s, demonstrates that it may be a workable strategy for a monopolist to maintain the status quo without eliminating all competition from rivals, and that it may engage in supracompetitive, although nonprofit maximizing pricing, by keeping smaller competitors in their “place” through market discipline exercised through a series of exotic business strategies, including exclusive dealing contracts in Dentsply, and in LePage’s, “bundled”, “loyally”, “marketshare”, and “growth” incentive rebate plans.

As certiorari was denied in both Dentsply and LePaige’s, as well as Conwood<sup?26 only time will tell whether Alcoa will trump Brooke.

1. 459 U.S. 519 (1983).
2. 317 U.S. 341 (1943).
3. 15 U.S.C. § 1012(b).
4. 260 U.S. 156 (1922).
5. Illinois Brick v. Illinois, 431 U.S. 720 (1977).
6. Associated Gen. Contractors of Cal. v. California State Council of Carpenters, 459 U.S. 519 (1983).
7. Mid-West Paper Prods. Co. v. Continental Group, 596 F.2d 573 (3d Cir. 1979).
8. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).
9. 995 F.2d 425 (3d Cir. 1993).
10. Associated Gen. Contractors of Cal., Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983).
11. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977).
12. Brown Shoe Co. v. United States, 370 U.S. 294 (1962).
13. Associated Gen. Contractors of Cal., Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983).
14. 15 U.S.C. §1125(a) (1994).
15. Supra, fn. 12.
16. A petition for certiorari was denied, 124 S. Ct. 2932 (2004) for entry of an order of dismissal.
17. See, 324 F.3d at 144.
18. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
19. Id. At 169
20. United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945).
21. American Tobacco Co. v. United States, 328 U.S. 781 (1946).
22. United States v. Grinnell Corp., 384 U.S. 563 (1966).
23. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).
24. Id. at 146-47.
25. See, United States v. Dentsply International, Inc., No. 03-4097 (3d Cir.), cert. denied, ______ U.S. ______ (2005).
26. Conwood Company, LP v. United States Tobacco Company, 290 F.3d 768 (6th Cir. (200__), cert. denied, 537 U.S. 1148 (2003).

Authored by:
Don T. Hibner, Jr.
213-617-4115
dhibner@sheppardmullin.com