The information contained the Articles is not intended to provide legal advice. There may be legal developments since the date of the Article which may significantly affect the information and analysis provided. These Articles have not been updated. Readers should not act upon any information or analysis contained in any of these Articles without consulting legal counsel.

Per Se Tying Claims

Overview
A per se tying claim rests on four elements: (1) two products or services; (2) the condition that one product be purchased in order to purchase the other or that a competitor's product not be acquired or dealt in; (3) the seller has appreciable economic power in the market for the tying product sufficient to enable it to coerce or force the buyer to comply with the condition; and (4) a "not insubstantial" amount of commerce in the market for the tied product is foreclosed. See Von Kalinowski, Von Kalinowski On Antitrust §22.02[1]; Areeda, Elhauge and Hovenkamp, Antitrust Law, Little, Brown & Company, 1996 Vol. IX, §1702. In addition to the essential elements of a per se claim many courts require that the plaintiff demonstrate (5) the fact of anticompetitive effect of the seller's tie-in in the tied market and (6) damage attributed to the improper tie in order to have standing to assert a private antitrust claim. Clayton Act §4.

Per Se Claims
Background
While the viability of per se analysis of an antitrust claim has been vigorously questioned by Courts (see O'Connor, J. concurring in Jefferson Parish Hospital District No. 2. V. Hyde, 466 U.S. 2, 104 S. Ct. 1551, 80 L. Ed. 2d 20 (1984) and commentators (see Areeda §1730), the majority in Jefferson Parish concluded that "[i]t is far too late in the history of our antitrust jurisprudence to question the proposition that certain tying arrangements pose an unacceptable risk of stifling competition and therefore are unreasonable 'per se.'" Nevertheless, a per se antitrust claim cannot be made out simply by proving a tie between two products. "It is clear that every refusal to sell two products separately cannot be said to restrain competition." Jefferson Parish, 466 U.S. 2, *, 104 S. Ct. 1551, 80 L. Ed. 2d 20 (1984). As then Judge Breyer noted in Grappone, Inc. v. Subaru of New England, Inc., 858 F.2d 792, 796 (1st Cir. 1988), "The majority and minority opinions in Jefferson Parish disagree, not in respect to the nature of the link between tie and potential competitive harm, but in respect to the legal conclusions they would draw from the nature of this linkage. The minority world abandon the per se anti-tying rules and analyze tying under a 'rule of reason'; it would prohibit tying only when, according to its 'demonstrated economic effects[,]…[tying's] anticompetitive impact outweighs its contribution to efficiency.' (citation omitted). The majority would retain pre-existing per se rules; but it also breathes life into the screening function that the preconditions of those per se rules serve. The majority, for example, makes clear that by its requirement of 'market power' it means significant market power -more than the mere ability to raise price only slightly, or only on occasion, or only to a few of seller's many customers." Grappone also noted that "…both the majority and minority opinions in Jefferson Parish recognized that tying's anticompetitive mechanism is not obvious…. The upshot…is that a 'tie' does not hurt the typical buyer in any obvious way; one needs a more refined analysis to find the harm. Grappone, 858 F.2d at 794-795. See also Lee v. Life Insurance of North America, 23 F.3d 14, 16 (1st Cir. 1994) ("Since many product 'ties' may not prove anti-competitive, notwithstanding their somewhat misleading epithet, 'per se' tie-ins may require a 'fairly subtle antitrust analysis' of 'market power,' a fact-intensive inquiry aimed at winnowing out only those ties most likely to threaten anti-competitive harm").

What then must a plaintiff prove where a per se antitrust claim is asserted? "While [plaintiff] argues on appeal that Honeywell's tying arrangement is illegal under both per se and rule of reason analysis, these two theories have in effect, merged in recent years. Under traditional per se analysis, restraints of trade are condemned without any inquiry into the market power possessed by the defendant. See, e.g. Northern Pacific Ry. Co. v. United States, 356 U. S. 1, 5, 78 S. Ct. 514, 518, 2 L.Ed.2d 545 ( * ). However, under tying's per se rule, the seller must possess substantial market power in the tying product market. In addition, tying's per se rule provides for an inquiry into whether the defendant's conduct has procompetitive effects. See Kodak, 504 U.S. at 478-79…. Such an extensive factual inquiry is * the stuff of per se analysis. Under rule-of-reason analysis, the antitrust plaintiff must show, inter alia, an adverse effect on competition. See Jefferson Parish …. This circuit [6th] adopted the following three-step analysis for determining whether a tying arrangement is likely to cause such an anticompetitive effect: '(1) the seller must have power in the tying product market; (2) there must be a substantial threat that the tying seller will acquire market power in the tied-product market; and (3) there must be a coherent economic basis for treating the tying and tied products as distinct." Hand v. Central Transp., Inc., 779 F.2d 8, 11 (6th Cir. 1985) Thus, in this circuit, market power in the tying product market is an indispensable requirement under either per se or rule-of-reason analysis. As Professors Areeda, Elhauge and Hovenkamp comment, 'the per se rule against tying is 'per se' in only one respect -namely, dispensing with proof of anticompetitive effects….' (citation omitted). The merger of these two theories is apparent in the majority opinion in Kodak, which does not even mention the terms 'per se' or 'rule of reason' even though Kodak was technically a per se case. PSI Repair Services, Inc. v. Honeywell, Inc., 104 F. 3d 811, 815 n.2 (6th Cir. 1997).

Whether the PSI court's assertion that market power was irrelevant to a per se claim historically is accurate or not (see Areeda 1734b), it is clear that proof of market power, also described as appreciable economic power, in the tying product market is essential to prove a tying claim after Jefferson Parish and Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 112 S. Ct. 2072, 119 L. Ed.2d 265 (1992). "That the 'market power' hurdle is moderately high -that it cannot ordinarily be surmounted simply by pointing to the fact of the tie itself or to a handful of objecting customers- makes sense in light of the harms the anti-tying rules seek to avoid. After all, sellers typically set fairly uniform prices, designed to attract a large number of buyers, not simply a handful of buyers who have some unusual and special preference for its products; a seller who has the power to raise prices only in respect to that special handful is a seller who cannot easily cause harm in tied product markets; and therefore one who cannot easily harm consumers. Of course, virtually every seller of a branded product has some customers who especially prefer its product. But to permit that fact alone to show market power is to condemn ties that are bound to be harmless, including some that may serve some useful social purpose." Grappone, 858 F.2d at 797.

In addition, for a per se case, while it may not be necessary to show the percentage of the tied market foreclosed to competition, it has been generally required to show that there is the probability of some significant effect of the tie on competition in the tied market. "The rationale for per se rules in part is to avoid a burdensome inquiry into actual market conditions in situations where the likelihood of anti-competitive conduct is so great as to render unjustified the costs of determining whether the particular case at bar involves anticompetitive conduct." Jefferson Parish, 466 U.S. 2, * n. 25. "Only if the tie significantly reduces the opportunities to sell Product B, can the tie significantly increase the Seller's power in respect to Product B, and thereby (i.e., by raising entry barriers) increase the Seller's power in respect to Product A. (citation omitted). And, insofar as tying impedes 'competition on the merits,' discouraging the search for innovation or efficiency, it does so in the tied product markets. Grappone, 858 F.2d at 796.

Thus, inquiry into the existence of separate product markets, the market power in the tying product market and the fact, but not necessarily the extent, of an anticompetitive effect in the tied product market are the contextual prerequisites to making out any per se tying claim.

The Elements of Proof
The Two Products Requirement
The threshold question is whether there are in fact separate products implicated by the tie-in claim. The identification of separate or similar products is anything but transparent. For an example of reasonable people differing see Faulkner Advertising Assocs., Inc. v. Nissan Motor Corp., 905 F.2d 769 (4th Cir. 1990) reversed en banc at 945 F.2d 694 because the en banc court split evenly on the question of whether two separate products were implicated. The analysis is not based on physical separateness but rather on economic separateness arising from sufficient consumer demand to permit the efficient production and sale of the separate products. "The answer to the question whether one or two products are involved turns not on the functional relation between them, but rather on the character of the demand for the two items….[A] tying arrangement cannot exist unless two separate product markets have been linked. The requirement that two distinguishable product markets be involved follows from the underlying rationale of the rule against tying. The definitional question depends on whether the arrangement may have the type of competitive consequences addressed by the rule. The answer to the question whether [defendants] have utilized a tying arrangement must be based on whether there is a possibility that the economic effect of the arrangement is that condemned by the rule against tying - that [defendants] have foreclosed competition on the merits in a product market distinct from the market for the tying item. Thus, in this case no tying arrangement can exist unless there is a sufficient demand for the purchase of anesthesiological services separate from hospital services to identify a distinct product market in which it is efficient to offer anesthesiological services separately from hospital services." Jefferson Parish, 466 U.S. at 19-22. The Court talked in terms of distinct markets and established a screening test based on the existence of demand and efficient markets in the products. To define the boundaries of separate products, it is necessary to look not at the physical dimensions of the products but at the economic dimensions of demand and production. The economic dimensions will be described by product substitutability or cross-elasticity of demand and the ability to economically produce and market the product as a separate commodity. Thus, the economic dimensions of the product are defined in a way which is similar to the definition of the relevant market.

Is it possible to have products for which different classes of buyers might have different needs and expectations. Can the determination of whether there are two products depend on the perspective of who the buyers of the product are construed to be? The answer from the cases is yes. "The District Court determined that the Times-Picayune and the States were separate and distinct newspapers, though published under single ownership and control. But that readers consciously distinguished between these two publications does not necessarily imply that advertisers bought separate and distinct products when insertions were placed in the Times-Picayune and the States. So to conclude here would involve speculation that advertisers bought space motivated by considerations other than customer coverage; that their media selections, in effect, rested on generic qualities differentiating morning from evening readers in New Orleans. Although advertising space in the Times-Picayune, as the sole morning daily, was doubtless essential to blanket coverage of the local newspaper readership, nothing in the record suggests that advertisers viewed the city's newspaper readers, morning or evening, as other than fungible customer potential. We must assume, therefore, that the readership 'bought' by advertisers in the Times-Picayune was the selfsame 'product' sold by the States and, for that matter, the Item. The factual departure from the 'tying' cases then becomes manifest. The common core of the adjudicated unlawful tying arrangements is the forced purchase of a second distinct commodity with the desired purchase of a dominant 'tying' product, resulting in economic harm to competition in the 'tied' market. Here, however, two newspapers under single ownership at the same place, time and terms sell indistinguishable products to advertisers; no dominant 'tying' product exists…; no leverage in one market excludes sellers in the second, because for present purposes the products are identical and the market the same. Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 613-614 (1953) (quoted at note 31 in Jefferson Parish) (emphasis added). The importance of perspective was highlighted by a District Court in Cutler v. Lewiston Daily Sun, 611 F. Supp. 746 (D. Me. 1985) in which the coerced buyers were not advertisers but subscribers. In Cutler the defendant required its subscibers to take both the daily and the Sunday paper. Perspective has a significant bearing on whether there is effective economic substitutability. For newspaper subscribers a morning or afternoon, weekly or Sunday paper are not complete substitutes -are not the same- for one another. Yet, for advertisers the readers of one or the other are substitutable. To determine the product market or markets in dispute, it is required that the questions of economic substitutability be looked at from the perspective of the allegedly coerced buyer.

While the readers of the morning Times-Picayune might be more or less affluent than the readers of the evening paper -and therefore more or less desirable to the advertisers- the product sold to the advertisers in Times-Picayune is readers of newspapers. That the consumer market deemed one element of the product as more desirable than another does not make the less desirable element separate products from the perspective of an advertiser or a dealer-reseller. In Southern Pines Chrysler-Plymouth v. Chrysler Corp., 826 F.2d 1360, 1363 (4th Cir. 1987), the Fourth Circuit found that "[t]here is, at the outset of every tie-in case, including the familiar cases involving physical good, the problem of determining 'whether two separate products are in fact involved.' (citation omitted). '[A] tying arrangement cannot exist unless two separate product markets have been linked.' (citation omitted). It is evident that the appellee-plaintiff has failed to demonstrate as a matter of law that Chrysler's forced sales involved the linking of 'two separate product markets' as required by Hyde. Fluctuating differences in the character of demand for particular models within the automobile consumer market do not create separate products. It is obvious on the present record that the market for automobile sales is of a piece, with the fluctuations in demand for any particular model with specific optional equipment and trim design reflecting merely shifting tastes within that product market….If this court were to accept the appellee's tying theory, then the mere forcing by a manufacturer of a single type of product in excess of the agreed amount could rise to the level of a per se antitrust violation."

"Since the Supreme Court's decision in Jefferson Parish, separate products were held not to exist with respect to single family homes and leased land upon which they were built; mortgage financing and attorneys' fees; warranties and engines; pathology and hospital services; first run T.V. shows and reruns of the same program; forbearance on extension of credit not separate from loan; credit and the purchase of consumer goods; and various products and maintenance of the products; loans and related services; the sale of cars at wholesale and related advertising services; separable part of white page listings in a telephone book; 'marketable' and 'hard-to-market' automobiles; and a computer terminal and database." Von Kalinowski at §22.02[2] at 22-9/10.

Two Products and Full-Line Forcing

Where the defendant-seller is the manufacturer (as is XYZ Co.) or the distributor of a line of similar commodities, courts have consistently upheld the requirement that a re-distributor or retail seller of one or more of the commodities within the product line have available for sale specified quantities of representative commodities from that product line. The courts' acceptance of full-line forcing can be understood from various antitrust vantages. One approach is to recognize that although there may be one or more theoretical ties based on differences in types of products included in the line, so long as it is reasonable to include the component products which make up the line within the same market, from the perspective of the dealer-reseller, it is the line itself which is the product and there can be no tie. This is implicit in Smith Mach. Co. v. Hesston Corp., 878 F.2d 1290, 1296 (10th Cir. 1989), cert. denied, 493 U.S. 1073 (1990). In that case the court upheld the requirement that the dealer purchase tractors in addition to other farm equipment. The court noted, however, that if the product components of the full line of products were not reasonably included within the same related market, then the reasonableness of the requirement to buy the whole line would be suspect as an illegal tie.

Another vantage avoids consideration of the one or two product problem. From this view full-line forcing, whether it is viewed as one or more products, is actually pro-competitive not anti-competitive and is not subject to per se antitrust scrutiny by its very nature. See Smith Mach. Co. v. Hesston Corp., 878 F.2d 1290, 1296 (10th Cir. 1989), cert. denied, 493 U.S. 1073 (1990)("common sense informs us that in most cases when, as here, the manufacturer does not prohibit a dealer from carrying competing lines, line forcing enhances interbrand competition by making another tractor available for sale to the public"). Essentially, the courts have refused in dealer full-line forcing cases to apply any per se assumption of anticompetitive effect in the 'tied' market. Full-line forcing claims simply do not raise the threat to commerce for which the antitrust laws have been crafted to prevent. "Does any relevant foreclosure arise when the defendant requires dealers handling his refrigerators to handle his electric razors as well? {Although the illustration suggests that the two items are different products, the differences can be enlarged (home refrigerator and office computer) or shrunk (large and small refrigerators).} The answer is negative when, as will often be the case, stocking or displaying the defendant's razor leaves dealers both contractually free and practically able to handle other brands." Areeda §1725(c) at 319-320. "…[M]ost courts dealing with the full-line force have not applied the per se rule against tying but have required proof in the particular case of a significant threat to competition." Areeda §1725(c) at 323. See also Stearns v. Genrad, 564 F. Supp. 1309, 1314-15 (M.D.N.C. 1983) aff'd on other grounds 752 F. 2d 942; Pitchford v. PEPI, Inc., 531 F.2d 92, 100 (3d Cir. 1976), cert. denied, 426 U.S. 935 (1976) ("Full line forcing is a violation of the antitrust laws only if the effect of such forcing 'may be to substantially lessen competition…in any line of commerce.' "); Colorado Pump and Supply v. Febco, 472 F.2d 637, 641 (10th Cir.), cert. denied, 411 U.S. 987 (1973) ("The mere existence of the requirement that the full line be stocked, without additional information about its competitive impact, does not suffice to establish an unreasonable restraint of trade."); Scanlan v. Anheuser Busch, 388 F.2d 918 (9th Cir.) cert. denied, 391 U.S. 916 (1968) ("A course of conduct which thus increases rather than diminishes competition, benefiting rather than injuring the public, is not condemned under the Sherman or Clayton Acts.").

Areeda proposes a three part test to determine full-line forces which are pro-competitive. "First, the customer must be a reseller who is contractually free and practically able to resell at least some other brand….Second, and more subtle, is the dealer's role in distributing the product. The more aggressively consumers shop around among brands, and among dealers for the allegedly tied product, the greater is the likelihood that a full-line force induces dealers to sell more aggressively in the interbrand market….Third is the relative unity of the line and the defendant's power over the product line. {Of course, if the product line is sufficiently unitary to be considered a single product, there is no tie-in at all}… Areeda §1725 at 323-324.

Areeda notes that notwithstanding the ultimate conclusion that the tie is pro-competitive, such an approach is not as economical of either business or judicial assets, and suggests that the simple screen of product line analysis may be more practical. "Although such pro-competitive factors can justify a tie, the burden of tying scrutiny can both overdeter useful conduct and unnecessarily burden the courts. Accordingly, we ask whether full-line forces should escape tying scrutiny because the product line is one product. In Southern Pines, the Fourth Circuit concluded that full-line forces do not involve separate products if the different models in the defendant's product line compete against each other. The court found that different models of Chrysler cars were not separate products because demand for them fluctuated, with some models being more popular some months and others more popular other months….In addition, most cases refuse to find an illegal tie…when the alleged tying items are different models of the same type of product. Liability is more likely to be found when the items in the product line seem to differ more." Areeda §1747 at 239-242.

Market Power

Market Power or appreciable economic power may be demonstrated directly or by indicia of market power which the courts have accepted as proof of market power, such as market share. Market share is simply a proxy for direct evidence of market power. "Market share, of course, is only one type of evidence that may prove the defendant has sufficient market power to impose per se antitrust liability. 'Market share is just a way of estimating market power, which is the ultimate consideration. When there are better ways to estimate market power, the court should use them'. " Allen-Myland, Inc. v. IBM Corp. 33 F.3d 194, 209 (3d Cir. 1994).

Direct evidence of market power is rare. It may consist of evidence of the exclusion of competitors from the market. See American Tobacco Co. v. United States, 328 U.S. 781, 789 (1946). It may consist of demonstrated ability to control prices at supracompetitive levels. See Grappone, Inc. v. Subaru of New England, Inc. 858 F.2d 792, 797 (1st Cir. 1988); PSI Repair Services, Inc. v. Honeywell, Inc., 104 F. 3d 811, 817 (6th Cir. 1997). It may consist of evidence of the ability to restrict output. PSI Repair Services, Inc. v. Honeywell, Inc., 104 F. 3d 811, 817 (6th Cir. 1997)(the ability to restrict output demonstrates "appreciable economic power.") It may even be possible in some cases to show market power through econometric studies of supply and demand. As noted by one district court, "[i]f direct proof of monopoly power were practicable, it would be preferable to the market analysis approach. The direct proof Areeda & Turner discuss in their treatise is direct economic proof, namely, demand and supply curves. Direct proof of monopoly power does not mean, however, testimony or physical evidence or opinions regarding the seller's market power. Demand and therefore, cost curves are very difficult to establish accurately, and market analysis provides convenient and accurate secondary measure of monopoly power." Telerate Systems v. Caro, 689 F. Supp. 221 (S.D.N.Y. 1988). Likewise, if direct proof of competition and lack of market power is available, it is equally availing to defeat any claim of market power. "Computer manufacturers are vigorous rivals; prices drop daily; this is one of our economy's most competititive sectors. Calling the selection of components for one's product a 'tie-in' does not help to uncover practices that restrict output, drive up prices, and transfer wealth from consumers to producers." Digital Equipment Corporation v. Uniq Digital Technologies, Inc., 73 F.3d 756 (7th Cir. 1996).

Secondary or indirect evidence of market power may consist of proof that "the defendant has sufficient market share to force buyers to purchase the tied product; a high percentage of the seller's customers have accepted the tying arrangement, for which there is no valid explanation; or the defendant has a competitive advantage due to 'special' characteristics of the tying product or to legal barriers, such as a trademark, copyright, or patent." Von Kalinowski §22.02[4][b] at 22-29.

Secondary evidence may consist of proof of buyers' acquiescence to disadvantageous terms. General Business Systems v. North American Philips Corp., 699 F.2d 965, 977 (1983) (Accepting burdensome terms that could not be negotiated in a competitive market is evidence of market power; but see Grappone 858 F.2d 792 (1st Cir. 1988)(court found that acquiescence did not prove market power because the tie promoted the business of selling new cars by assuring availability of replacement parts. Therefore, acceptance -as opposed to dissent and challenge- by dealers was not evidence of market power).

Secondary evidence may consist of some special advantage in the making or marketing of the tying product. Uniqueness of the product alone is not a special characteristic sufficient to demonstrate market power. The characteristics of the product must give the seller some special advantage. "Plaintiffs' principal argument was uniqueness. All they proved, however, is that Comprehensive's franchising system is unusual; there are few similar systems, and Comprehensive may be the most successful franchisor of accountants…[S]uch a showing is inadequate. Plaintiffs did not show or try to show that rivals could not produce a similar package for a similar cost; without such a showing, they must lose." Will v. Comprehensive Accounting Corp., 776 F.2d 665 (7th Cir. 1985), cert. denied, 475 U.S. 1129 (1986). Special advantage may consist of barriers to entry into the market. "The presence and degree of barriers to entry or expansion, technological superiority resulting in cost advantages, economies of scale and scope, ability to price discriminate, the relative size of competitors, competitor's performance, pricing trends and practices, homogeneity of products, potential competition, and the stability of market shares over time, alone or in conjunction with other factors, are also considered in assessing a firm's [market] power." ABA at 238.

Despite recognition of other secondary indicia of market power, courts generally regard market share as the most important factor in determining the existence or absence of market power. "Where market share data are not available or where the market share is relatively low…the court may require 'unambiguous evidence' that the defendant has the power to control price or exclude competition." ABA at 237-8. Market share of 30% or less has been recognized as inadequate to support a finding of market power. "A thirty percent share of the market, standing alone, provides insufficient basis from which to infer market power." PSI Repair Services, Inc. v. Honeywell, Inc., 104 F. 3d 811, 818 (6th Cir. 1997) citing Jefferson Parish at 26-29. "If the fact that Jefferson Parish Hospital received 30 percent of all hospital patients living in East Jefferson Parish did not show market power, it is difficult to see how these far smaller figures could show the contrary here. Cf. A.I. Root, 806 F.2d at 675 ( 2-4 percent market share insufficient); Kenworth of Boston, 735 F.2d at 624 (18 percent share insufficient); Phillips v. Crown Central Petroleum Corp., 602 F.2d 616, 629 (4th Cir. 1979) 10 percent share "probably …very close to the minimum permissible'), cert. denied, 444 U.S. 1074…(1980); U.S. Dept. of Justice, Vertical Restraint Guidelines § 5.3 (1985) (market share less than 30 percent treated as insufficient), quoted in Will, 776 F.2d at 672." Grappone, Inc. v. Subaru of New England, Inc. 858 F.2d 792, 797 (1st Cir. 1988). "DEC's share of the mid-range business is substantially less than 30%, and Hyde holds that 30% is not enough to confer substantial market power unless there are high barriers to competition. Rapid and continuing entry into the computer business, and ease with which existing firms increase output, dispel any concern about barriers to entry." Digital Equipment Corporation v. Uniq Digital Technologies, Inc., 73 F.3d 756 (7th Cir. 1996).

Courts have used market share as a primary screen for market power. Where the defendant has a market share greater than 30% it is still possible to refute a finding of market power by demonstrating ease of entry into the market or that prices are not set or maintained at above competitive levels. "Notwithstanding the extent of an antitrust defendant's market share, the ease or difficulty with which competitors enter the market is an important factor in determining whether the defendant has true market power-the power to raise prices…The lower the barriers to entry, and the shorter the lags of new entry, the less power existing firms have. When supply is highly elastic, existing market share does not signify power." Allen-Myland, 33 F.3d at 209. Price of the product set at a competitive level may also negate an inference of market power (or at least its anticompetitive abuse). "In Kodak…the Supreme Court held that when users are locked into a particular vendor by the sunk cost of the product, market power may exist in the aftermarket for parts even though the equipment market is competitive… [I]f IBM had market power over upgrades with respect to a large number of mainframe users, we would expect it to charge supracompetitive prices for upgrades. Yet, the district court found that IBM prices its upgrades such that the user pays the same amount for an upgrade as the price differential between the prices of the more powerful and the existing computers if purchased new…This belies any special power over an upgrade submarket; IBM's power is limited to whatever control it is able to maintain over the larger relevant market." Allen-Myland, Inc. v. IBM Corp. 33 F.3d 194, 208 (3d Cir. 1994).

While a 30% share or less is conclusive that the defendant lacks market power, a market share of 30% or more is not similarly conclusive that the defendant possesses market power. "As usual, we can be more confident in denying the existence of power with 'low' market shares than in knowing how large a share is needed to show it. So long as customers have ample alternative supplies available in the market, the defendant does not have the unilateral power to charge significantly more than rivals or to extract an unwanted tie-in without compensating customers for burdening them. There is substantial merit in a presumption that market shares below 50 or 60 percent do not imply such market power." Areeda 1736 at pages 87-8.

Relevant Market

The thrust of the relevant market inquiry is to determine the seller's ability to control price and output and alter the competitive balance in the tied market by the imposition of conditions on the availability of the product over which it has power by showing sufficient market share to be able to coerce compliance. To determine by application of market share standards whether the seller has appreciable economic power in the market for the tying product which is sufficient to enable it to coerce or force the buyer to comply with the condition or conditions imposed requires that the market for the tying product be defined. Appreciable economic power is fundamentally the analysis of defendant's share of something and the inquiry is into the share of what. "The threshold consideration in establishing market power is the relevant market. (Citation omitted). A firm cannot impose monopoly prices if buyers are free to purchase a competitor's goods. Thus, all products that are 'reasonably interchangeable,' and so can be said to compete with each other for the same buyers' dollars, are included in the market definition." General Business Systems v. North American Philips Corp., 699 F.2d 965, 972 (9th Cir. 1983).

The relevant market can be approached from either or both a buyer's and a seller's perspective. From the buyer's perspective defining the market depends on (1) functional interchangeability of product, (2) effectiveness of competition and (3) the sensitivity of the buyer of one product to changes in price of another (known as cross-elasticity of demand). Functional interchangeability depends on whether various products may be substituted effectively - not perfectly- for one another. Cross-elasticity of demand depends on the correlation between prices not similarity of price. Where cross-elasticity is high, products are in the same market. However, actual competition may substitute where cross-elasticity is low, since effective competition may change the buying habits of the consumers of the products. All of these factors address the reasonable choices available to buyers of the tying product. "The legal standard is whether the product is reasonably interchangeable… '[W]here there are market alternatives that buyers may readily use for their purposes, illegal monopoly does not exist merely because the product said to be monopolized differs from others. If it were not so, only physically identical products would be a part of the market.' ." Telex Corp. v. IBM, 510 F.2d 894, 915, cert. dismissed, 423 U.S. 802 (1975) (quoting from United States v. E.I. DuPont de Nemours & Co., 351 U.S. 377, 76 S.Ct 994, 100 L.Ed. 1264 (1956).

The inquiry may also be addressed to the interchangeability of production facilities. This approach to the relevant market is from the seller's perspective. If there is high cross-elasticity of supply, then the market is potentially broader and includes potential supply facilities. "…[W]hen there is a high degree of substitutability in the use of two commodities, it may be said that the cross-elasticity of demand between them is relatively high, and therefore the two should be considered in the same market. A like analysis applies when the market is viewed from the production rather than the consumption standpoint; the degree of substitutability in production is measured by the cross-elasticity of supply. Substitutability in production refers to the ability of firms in a given line of commerce to turn their productive facilities toward the production of commodities in another line because of similarities in technology between them. Where the degree of substitutability in production is high, cross-elasticities of supply will also be high, and again the two commodities in question should be treated as part of the same market. While the majority of the decided cases in which the rule of reasonable interchangeability is employed deal with the 'use' side of the market, the courts have not been unaware of the importance of substitutability on the 'production' side as well." ILC Peripherals Leasing Corp. v. IBM, 458 F. Supp. 423, 427 (N.D.Cal. 1978), aff'd sub nom. Memorex Corp. v. IBM, 636 F.2d 1188 (9th Cir. 1980), cert. denied, 452 U.S. 972 (1981).

The courts will customarily favor reliance on the market defined by demand as distinguished from supply. See Jefferson Parish, 466 U.S. at * ("In sum, any inquiry into the validity of a tying arrangement must focus on the market or markets in which the two products are sold, for that is where the anticompetitive forcing has its impact. Thus, in this case our analysis of the tying issue must focus on the hospital's sale of services to its patients, rather than its contractual arrangements with the providers of anesthesiological services").

In addition to interchangeability, elasticity of demand and supply and effectiveness of competition, a market is also geographically and temporally defined. It is necessary to determine if the market is local, national or worldwide. The area in which sellers compete and buyers can practically turn for supply depends on actual trade patterns. Transportation costs, actual sales, localized demand, geographic price variation and industry recognition of area differences are all important in defining the market geographically. The geographic market must be realistic for the time period in question. "…[T]he designation of the relevant market requires considerable judgment. Its dimensions include the product involved, the geographical limits within which it functions, and the appropriate time frame." General Business Systems v. North American Philips Corp., 699 F.2d 965, 972 (1983). The concept of market boundaries being defined geographically and temporally further refines the analysis of cross-elasticity i.e. can non-local competitors influence supply if the price is attractive. Determining when the market should be described involves not only the days or years involved at issue in the case (duration) but also whether the market for goods and services required can be limited to the time after the initial product purchase decisions have been made i.e. the so-called aftermarket.

Factors Courts Consider in Limiting Market Definition

Uniqueness (special characteristics or advantages) may limit the market definition since the character of the product may be such that there is no really effective substitute. See Kodak 504 U.S at * ("Kodak equipment is unique; micrographic software programs that operate on Kodak machines, for example, are not compatible with competitors' machines. Kodak parts are not compatible with other manufacturers' equipment and vice versa"). As discussed above, a product's special characteristics (uniqueness) is often considered when considering market power. It has been said that where market share is insufficient in itself, some special advantage may be found to be available to a seller not available to its competitors which results in effective market power. This is just as easily viewed as creating a special market in the unique product and the case decided on the basis of the seller's market share of the special product market. Owners of patents, trademarks and copyrights have historically been held to close scrutiny when they tie availability of their patented product to another product market. See Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917) (restricting use of a patented motion picture camera to films distributed by patent holder); Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942) (tying use of canning machinery to purchase of salt); United Shoe Machinery Corp. v. United States, 258 451 (1922) (restricting use of leased machinery to products made on lessor's machinery and prohibiting use of machines for use in finishing shoes partially made on competitors' machines).

Courts have held that a broad market may consist of submarkets. There is a 7 part test established in Brown Shoe Co. v. United States, 370 U.S. 294 (1962) to determine if a submarket exists: public recognition of the submarket; the products peculiar characteristics and uses; unique production facilities; distinct customers; distinct prices; sensitivity to price changes and specialized vendors. "For the purposes of antitrust analysis, the relevant market may also be a sub-market delineated by 'industry or public recognition of the sub-market as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes and specialized vendors.' " . General Business Systems v. North American Philips Corp., 699 F.2d 965, 972 (1983) quoting Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962). A submarket is, of course, nothing more than the description or definition of a limited relevant market.

Two sub- problems of the submarket analysis are whether (1) branded products are their own market and (2) whether the parts, repairs and replacement products relating to them are a separate relevant submarket.

Brand Is Not A Product Market

It is commonly recognized that without palpable uniqueness, the seller of the market recognized brand has not created a market separate from the products market in which it competes. As noted in the following cases market power will be assessed against the wider non-branded market. In DuPont, at 393 the Supreme Court held that because each manufacturer has a natural "monopoly" in the sale of its own products, such "monopolies" do not violate the antitrust laws. "Thus one can theorize that we have monopolistic competition in every non standardized commodity with each manufacturer having power over the price and production of his own product. However, this power that, let us say, automobile or soft-drink manufacturers have over their trademarked products is not the power that makes an illegal monopoly. Illegal power must be appraised in terms of the competitive market for the product." The question in DuPont was whether DuPont, manufacturer of almost 75% of the cellophane sold in the country, had monopolized the cellophane market. The court held the relevant market was not just cellophane packaging products but all flexible wrapping materials, of which DuPont sold only 20%.

"[V]irtually every seller of a branded product has some customers who especially prefer its product. But to permit that fact alone to show market power is to condemn ties that are bound to be harmless, including some that may serve some useful social purpose." Grappone, Inc. v. Subaru of New England, Inc. 858 F.2d 792, 797 (1st Cir. 1988). "The most one can say is that Subaru has a brand name and sells through 'authorized' Subaru dealers. But, we find no Supreme Court case law suggesting that such features by themselves are sufficient to show 'market power.' They do not automatically demonstrate any 'economic' or 'cost advantage' or any other advantage 'not shared by competitors.' Grappone, 858 F.2d at 798 (quoting Fortner I). "Accepting PSI's argument [that brand product is relevant market because of information and switching cost] would expose many manufacturers of durable, expensive equipment to potential antitrust liability for having inherent power over the aftermarkets of their products, a result certainly not intended by Kodak and not consistent with Jefferson Parish." PSI Repair Services, Inc. v. Honeywell, Inc., 104 F. 3d 811, 820 (6th Cir. 1997). "The court recognized that inasmuch as every manufacturer, originally at least, has 100 per cent of its own product, including the peripherals, the likelihood of finding monopolization in this area increases as the circumscribing products market is more circumscribed." Telex Corp. v. IBM, 510 F.2d 894, 915, cert. dismissed, 423 U.S. 802 (1975).

Thus, one brand in a market of competing brands cannot constitute a relevant product market absent exceptional conditions because of the interchangeability of products. A.I. Root Co. v. Computer/Dynamics, Inc., 806 F.2d 673 (6th Cir. 1986) (rejecting using BOSS operating system as relevant market); Domed Stadium Hotel v. Holiday Inns, Inc., 732 F.2d 480, 488 (5th Cir. 1984) (rejecting Holiday Inn hotel rooms as relevant market); General Business Systems v. North American Philips Corp., 699 F.2d 965 (9th Cir. 1983) (rejecting assertion that Philips compatible computer cards were the relevant market); Sweeney & Sons, Inc. v. Texaco, Inc., 637 F.2d 105 (3rd Cir. 1980), cert. Denied, 451 U.S. 911 (1981) (rejecting Texaco gasoline as relevant market); Telex Corp. v. IBM, 510 F.2d 894 (10th Cir.), cert. Dismissed, 423 U.S. 802 (1975) (rejecting peripherals that are plug compatible with IBM computers as relevant market); Mullis v. ARCO Petroleum Corp., 502 F.2d 290, 296 (7th Cir. 1974) (rejecting ARCO petroleum products as relevant market: "[t]he only relevant evidence in the record proves ARCO products are in active competition with other brands."); Robinson v. Intergraph Corp., 1988-2 Trade Cs. (CCH) 68,138, p. 58,932 (E.D. Mich. 1988) (because alternative products are available, the plaintiff's software "is not, in-and-of-itself, a separate market"); Digital Equipment Corporation v. Uniq Digital Technologies, Inc., 73 F.3d 756 (7th Cir. 1996) (refusing to limit market to products made by Digital and finding active competition between Digital computers and those manufactured by others).

Derivative Aftermarket

The issue touched on in A.I.Root, Telex, and Uniq is whether the relevant market can be limited to the branded product's upgrades, parts and peripherals directed to those who already own the primary product. This is the issue of buyer lock-in considered in Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 112 S. Ct. 2072, 119 L. Ed.2d 265 (1992). The question of whether the so-called derivative aftermarket parts, repairs and replacements is a market separate and apart from the primary product market is more problematic than any remaining questions about the relevance of a brand market. In Kodak the Supreme Court addressed whether competition in the primary equipment market was per se competition in the so-called aftermarket. The Court held that competition in the primary equipment market did not mean as a matter of law that there could not be market power in the aftermarket and that the question was one of fact. "Legal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law. This Court has preferred to resolve antitrust claims on a case-by-case basis, focusing on the 'particular facts disclosed by the record.' " Kodak at *. There has been extensive scholarly discussion of Kodak but little judicial construction. Those courts that have addressed Kodak have understood it as rejecting a prohibitory rule without adopting the counter argument that all branded aftermarket products create their own relevant market. The Kodak holding has been construed as limited to one that allows for the possibility of proof of a possible limited submarket which is insulated from the primary market. "According to Uniq, everything changed when the Supreme Court issued its opinion in Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992)….Uniq sees in Kodak the message that there is a market in a firm's own products, even if it sells in vigorous competition. If that is so, then Kodak overruled Hyde, which held the opposite….Kodak did not undercut Hyde. The Court did not doubt in Kodak that if spare parts had been bundled with Kodak's copiers from the outset, or Kodak had informed customers about its policies before they bought its machines, purchasers could have shopped around for competitive life-cycle prices…One could hardly imagine a weaker case for the claim that DEC's computers are a market unto themselves. DEC is selling a fungible commodity (CPU cycles), to customers who can substitute brands without changing operating systems, in a market with rapid increase in production. Monopoly this is not….This is a mundane commercial case, in which a buyer has used the antitrust laws to postpone paying its debts. Time for payment is at hand." Digital Equipment Corporation v. Uniq Digital Technologies, Inc., 73 F.3d 756 (7th Cir. 1996).

"When a tie between parts and service should be treated identically to a tie between equipment and service, as the dissent and Kodak argue, depends on whether the equipment market prevents the exertion of market power in the parts market." Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 477 n.24, 112 S. Ct. 2072, 119 L. Ed.2d 265 (1992). "This passage can be read to imply that had Kodak presented undisputed evidence that it never changed its policy and that its policy was generally known, the court would have considered Kodak copiers as the tying product and service and parts combined as the product being tied." PSI Repair Services, Inc. v. Honeywell, Inc., 104 F. 3d 811, 819 (6th Cir. 1997). The Kodak consideration of market definition is similar to the market considerations in the IBM antitrust litigation of the 1970's. "Should not the peripheral products plug compatible with systems other than IBM be considered part of the relevant market, because of the admitted competition existing as between system manufacturers on a system by system basis in which the peripherals are a significant part of the system? … '[S]uppliers of peripherals plug compatible with non-IBM systems could in various instances shift to the production of IBM plug compatible peripherals, and vice versa, should the economic rewards in the realities of the market become sufficiently attractive and if predatory practices of others did not dissuade them.'…Manufacturers of peripherals were not limited to those which were plug compatible with IBM CPU's. These manufacturers were free to adapt their products through interface changes to plug into non-IBM systems." Telex Corp. v. IBM, 510 F.2d 894, 916-917, cert. dismissed, 423 U.S. 802 (1975).

Thus, the market description issue in the branded aftermarket for derivative products is whether the submarket is in fact insulated from competition by the particular facts relevant to describing the market. In Allen-Myland, Inc. v. IBM Corp. 33 F.3d 194, 205 (3d Cir. 1994) the court stated: "Although mainframes and smaller capacity computers may be substitutable when a new computer application is being developed or an existing application is no longer useful and must be rewritten anyway, they argue that there are significant switching costs that prevent this from happening in the short run. For example, to 'port' an existing application from a mainframe to a smaller computer, the applications software may have to be rewritten, the data files may have to be converted to new formats, and personnel may have to be retrained on the new system. The costs of doing so and the delay involved could well cause the computer user to remain with a mainframe-based system rather than convert to a smaller computer; indeed, one court has noted that, for compatibility reasons, over 80% of users remain loyal to the manufacturer of their original systems… If it is prohibitively expensive to switch to a smaller capacity computer before the normal end of an application system's life cycle, then IBM, at least for those locked-in customers, would not face any realistic competition from smaller machines and would thus possess market power as if they did not exist."

All of this discussion is reminiscent of the discussion of the similar problem addressed in General Business Systems. "According to GBS, the appropriate product in this case is the Philips-compatible mlc when sold at wholesale. Its entire case is dependent on this choice of appropriate product. Only in this narrowly defined market did Philips possess a significant share. It asserts that the owners of Philips computers were locked-in to Philips-compatible mlcs….GBS also claims that the industry recognized a distinct Philips-compatible mlc market….The primary source of the failure of GBS to establish its position is the district court's conclusion that the market for Philips-compatible mlcs was not insulated from the competitive struggle between computer systems. That is, in its view Philips had little or no power to raise the price of its mlcs without reducing its profits because any such increase would diminish sales of its computer system and very likely adversely affect aggregate profits. Were mlc prices significantly increased, computer system buyers quickly could shift to other sellers who, in turn, could profitably expand their output to meet the new demand….Mlcs were sold separately from computers because of the dynamics of use, not market differentiation. Users could hardly be expected to buy a supply of mlcs good for the product life of the computer when they made their initial purchase of a P300 or P350. The physical division of consumer behavior does not alone establish that it is directed at separate markets." General Business Systems v. North American Philips Corp., 699 F.2d 965, 972-973 (1983).

From all of the cases, including Kodak, it is apparent that defining the appropriate market against which to assess the seller's market power is, in the end, a question of fact. The market definition will turn on competitive pressures within the market, on interchangeability of products, on supply of interchangeable products, on price elasticity and other elements of the market dynamics relied on by the parties to the litigation. While the antitrust plaintiff will define the market as limited, the inquiry is whether the market as plaintiff defines it is insulated from the competitive effects of a more broadly defined market. The burden is on the antitrust plaintiff to demonstrate that the market is insulated from the broader market competition and if it is unable to do so, then the market must be more expansively defined. Lee v. Life Insurance Co. of America, 23 F.3d 14, 18 (1st Cir.1994); U.S. Anchor Mfg., Inc. v. Rule Industries, Inc., 7 F.3d 986, 994 (11th Cir.1994). Obviously, as the market is more expansively defined so the antitrust defendant's market power is diminished.

Proof of Relevant Market
Participants in the Market or Cross Elasticity of Supply

Notwithstanding that courts have described the process of determining the relevant market differently, the first essential element is to identify the producers or sellers of the products that compete to some substantial degree with the product in question. The FTC's 1992 Merger Guidelines include a detailed process for identifying the participants in the market who are described as "all firms that currently produce or sell" the relevant product in the relevant geographic market. 1992 Guidelines §1.31. This definition includes firms that produce the product for their own captive use (if there are no actual impediments to their entry into the market), as well as firms that produce or sell the product in used, recycled, or reconditioned form. See Allen-Myland, Inc. v. IBM Corp. 33 F.3d 194 (3d Cir. 1994). Market participants also include "uncommitted entrants" which the Guidelines define as "firms that likely would commence production of the relevant product within one year without the expenditure of significant sunk costs of entry and exit in response to a 'small but significant and nontransitory price increase.' " These uncommitted entrants include firms that would engage in "production substitution," i.e. able to rapidly shift production facilities. In addition, firms that would continue to produce whatever existing products but have the facilities to extend the use of existing assets for the production of the relevant product are included. Finally, firms able to enter the market without significant investment but not strictly qualifying as production substitutes or use extenders will be included. Only those firms that are likely to enter the market will, however, be considered. Thus, it is insufficient that the firm have the capacity or the technical ability to produce the product. As a further qualifier, inability to gain rapid consumer acceptance because of brand loyalty will be considered in determining a firms ability and likelihood to enter the market. "…[D]efining a relevant product market is a process of describing those groups of producers which, because of the similarity of their products, have the ability -actual or potential - to take significant amounts of business away from each other." SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1063 (3d Cir.) cert. denied, 439 U.S. 838 (1978).

Product Substitutability or Cross-Elasticity of Demand

The FTC 1992 Guidelines focus on the price consequences if competition among the producers or sellers were to cease. Relying on the Guidelines, the FTC and the courts have defined the relevant product market as "the smallest grouping of products whose sellers, if unified by a hypothetical cartel or merger, could profitably increase prices significantly above the competitive level." R.R. Donnelley & Sons Co. 5 Trade Reg. Rep. (CCH) 23,876 at 23,639 (FTC July 21, 1995)(citing H.J. Inc. v. ITT, 867 F.2d 1531 (8th Cir. 1989). While such a statement appears to pose a rhetorical test, it incorporates many of the factual considerations in market definition. To find the smallest grouping of products capable of supporting a price cartel, product interchangeability becomes critical. See United States v. E.I. du Pont de Nemours & Co. 351 U.S. 377, 394 (1956) ("Where there are market alternatives that buyers may readily use for their purposes, illegal monopoly does not exist merely because the product said to be monopolized differs from others"). The inquiry is then whether customers are willing to substitute one product for another. "The ultimate determinant of whether products belong in the same market is whether customers are willing to substitute one product for the other. In determining whether the products 'have the ability-actual or potential-to take significant amounts of business away from each other,' courts have considered a wide variety of evidence, including direct evidence of customer views on the interchangeability of the products, the relationship between the price of one product and the sales of another, the presence or absence of specialized vendors, industry or public perception of separate markets or submarkets, views of firms regarding who their competitors are, and the existence or absence of different consumer groups." Antitrust Law Developments (Fourth), Section of Antitrust Law, American Bar Association, 1997, pages 505-507.

Differences in product type has been a recurring issue in determining what products are interchangeable. The courts have considered whether one product is a good or poor substitute for the other, not whether there are physical differences. See du Pont 351 U.S. 377, 411 (all flexible wrappings are part of same market despite differences in burst strength, gas permeability and grease resistance because of actual competition). In Fineman v. Armstrong World Industries, 980 F.2d 171 (3d Cir. 1992), cert. denied, 507 U.S. 921 (1993) testimony that residential customers preferred carpeting in bedrooms and resilient floor covering products in kitchen and bathrooms supported jury finding that the products were not reasonably interchangeable. Market research and consumer testimony are important evidence of product substitutability where product types are different. The same consumer preference evidence is important where the products are of the same type but of different grade or quality. "The cases have produced widely divergent rulings ranging from courts that delineate narrow submarkets for individual products that may be differentiated in the minds of discriminating consumers, to courts that incorporate a wide variety of product grades or types into a single relevant market so long as the products are reasonably interchangeable in ultimate use….Quality differences between products have similarly led courts to create narrow discrete markets-even where the differentiated products can serve the same basic use-especially where there is a wide variety in prices. At the other end of the spectrum are decisions that have included in a broad relevant market products that differ in perceived quality but yet fall along a single price-quality continuum." ABA at page 510-511.

Interestingly, du Pont notwithstanding, price differences may be considered more important in defining the market than functional similarity. In United States v. Aluminum Co. of America, 377 U.S. 271, 284 (1964) the Supreme Court upheld the determination that copper and aluminum cable were in different markets because there was a more than 50% price difference despite the fact that "each does the job equally well" and "the class of customers is the same." See also United States v. Archer-Daniels-Midland Co., 866 F.2d 242 (8th Cir.), cert. denied, 493 U.S. 809 (1989)(sugar and high fructose corn syrup not part of same market even though functionally interchangeable because of the artificial price difference created by the statutory sugar program permitting a monopolist in corn syrup to raise prices). Evidence of similarities and differences in price trends will also be considered, but more often to negate sharing a common market than to support it.

Price is the essential consideration for the FTC under its 1992 Merger Guidelines. While the Guidelines seem to require econometric modeling of the market, the FTC relies on the views of the participants in the variously studied markets. This includes both sellers and buyers. The Guidelines (§1.11) state:

In considering the likely reaction of buyers to a price increase, the [government] will take into account all relevant evidence, including, but not limited to, the following:
(1) evidence that buyers have shifted or have considered shifting purchases between products in response to relative changes in price or other competitive variables;
(2) evidence that sellers base business decisions on the prospect of buyer substitution between products in response to relative changes in price or other competitive variables;
(3) the influence of downstream competition faced by buyers in their output markets; and
(4) the timing and cost of switching products.
In summary, the relevant market will be shaped by its participants, by price, by consumer discrimination and by the effects of both upstream and downstream factors.

Coercion

There are cases which pre-date Jefferson Parish which held that it was not necessary to prove coercion. See Von Kalinowski at §22.02[3] at 22-19. In those cases there was an express contractual requirement for the purchase of the two products. In Jefferson Parish the Supreme Court expressly required coercion. "Our cases have concluded that the essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product….When such 'forcing' is present, competition on the merits in the market for the tied item is restrained and the Sherman Act is violated." Jefferson Parish, 466 U.S. 2, * . In Bogosian v. Gulf Oil Corp., 561 F.2d 434, 452 (3d Cir. 1977), the 3d Circuit addressed the issue of forcing in a decision delivered before Jefferson Parish and held that no proof of coercion was required where there was a direct contract provision conditioning the sale of one product on the purchase of another. On remand the district court concluded that Jefferson Parish had overruled the 3d Circuit decision and concluded that coercion was a necessary element. Bogosian v. Gulf Oil Corp., 596 F. Supp. 62, 76 (E.D. Pa. 1984). The district court for the District of Delaware came to the same conclusion in Kellam Energy, Inc. v. Duncan, 668 F. Supp. 861, 882 (D. Del. 1987). For a recitation of cases in which coercion has been required, see Areeda 1752e at 283.

What is meant by forcing or coercion? Certainly, more than simply buying two products in the same transaction is required. Although some courts have inferred coercion from market power in the sale of two products, as Areeda notes "…even customers from an A monopolist might take his B of their own free will, and the fact that the A monopolist is willing to sell both A and B to a particular customer does not mean he conditions the sale of A on the sales of B." 1752e, note 19 at 284. "Instead of articulating standards of legitimacy, the 'coercion' or 'forcing' shorthand leaves obscure for review whether the judge or jury examined the correct factors….The legal question then is whether the defendant constrained or structured those options illegitimately…" Areeda, 1752e at 285. Thus, as Areeda et al. note "...a tying 'agreement' or 'condition' is present when the defendant has taken advantage of customers' desire for his product A to constrain improperly their choice between his product B and that of his rivals." Areeda 1752e at 283.

Coercion or forcing is the imposition of conditions to the sale of the tying product which leverages the seller's market power. The condition may be expressed or simply reasonably understood from the seller's behavior. It is the seller's behavior and its objective meaning, rather than the subjective belief of the plaintiff, which controls. Plaintiff must demonstrate the but for X, seller would not sell Y. Coercion is proof of constraint or a conditioned transaction.

Not Insubstantial Volume of Commerce Affected

The final prong of the per se test is whether more than a de minimis dollar volume of commerce in the tied product market is foreclosed. This is the least onerous screen to the maintenance of a tying action. Courts have held that as little as $6,000 is sufficient. See Ringtown Wilbert Vault Works v. Schuylkill Memorial Park, Inc., 650 F. Supp. 823, 826-7 (E.D. Pa. 1986).

Anti-Competitive Consequences of the Tie-In

While most courts do not require the same degree of proof of anticompetitive effect in the tied market in a per se claim as would be required in a rule-of-reason case, most of the circuits require the plaintiff to prove the fact of, if not the extent of, anticompetitive effect. Wells Real Estate, Inc. v. Greater Lowell Bd. of Realtors, 850 F.2d 830 (1st Cir), cert. denied, 488 U.S. 955 (1988); Yentsch v. Texaco, Inc., 630 F.2d 46, 58 (2d Cir. 1980)(requiring "at least some showing that the illegal tying arrangement results in actual foreclosure of competition in the tied product market"); Roy B. Taylor v. Hollymatic Corp., 28 F.3d 1379, 1382 (5th Cir. 1994)("there must be proof 'as a threshold matter…[of] a substantial potential for impact on competition…"); Hand v. Central Transp. Inc., 779 F.2d 8 (6th Cir. 1985), cert. denied, 475 U.S. 1129 (1986); Datagate, Inc. v. Hewlett Packard Co., 941 F.2d 864 (9th Cir. 1991)(reversing dismissal because of the significant impact on competition in market for tied product); Fox Motors, Inc. v. Mazda Distribs. (Gulf) Inc. 806 F.2d 953 (10th Cir. 1986) (allocation system promoted competition in tied market); Amey, Inc. v. Gulf Abstract & Title, Inc., 758 F.2d 1486 (11th Cir. 1985), cert. denied, 475 U.S. 1107 (1986). The Seventh Circuit stated in one case that it would require a showing of "a substantial danger that the tying seller will acquire market power in the tied product market." Carl Sandburg Village Condominium Ass'n No. 1 v. First Condominium Dev. Co., 758 F. 2d 203, 210 (7th Cir. 1985) (but see Parts & Elec. Motors, Inc. v. Sterling Elec. Inc., 826 F.2d 712 (7th Cir. 1987) in which panel questioned requiring that tie-in would lead to market power in the tied product). Whatever the level of proof required in the Seventh Circuit, 'at least some showing of foreclosure of competition in the tied product market' would be required.

As a result, there are several screening conditions which plaintiff must satisfy. The first is that a seller cannot be liable for an illegal tie if the alleged condition is that the buyer purchase a tied product the buyer would not have otherwise bought. "When a purchaser is forced to buy a product he would not have otherwise bought even from another seller in the tied-product market, there can be no adverse impact on competition because no portion of the market which would otherwise have been available to other sellers has been foreclosed." Jefferson Parish Hospital District No. 2. V. Hyde, 466 U.S. 2 at 16, 104 S. Ct. 1551, 80 L. Ed. 2d 20 (1984). As a corollary, there must be economically efficient demand for the tied product. "…[A] tying arrangement cannot exist unless there is a sufficient demand for the purchase of the tied product separate from the purchase of the tying product so as to identify a market structure in which it is efficient to offer the tied product separately from the tying product." Allen-Myland, Inc. v. IBM Corp. 33 F.3d 194, 211 (3d Cir. 1994). There must be the possibility of competition that is adversely affected. "…[W]e could find no evidence (and given the tiny numbers it is unreasonable to think) that any decision by others to enter that market for a year was likely or that their failure to do so could have had a significant anticompetititve impact. That any such effect was of little significance is reinforced by Grappone's claim that some of the extra parts were unnecessary; to that extent, anticompetitive impact is impossible, for purchases from SNE could not have replaced purchases from any other actual, or potential, SNE competitor." Grappone, Inc. v. Subaru of New England, Inc. 858 F.2d 792, 799 (1st Cir. 1988).

As highlighted by Grappone, in order for there to be a cognizable foreclosure of some significant part of the tied market, there have to be a number of buyers affected by the alleged tie-in. "If only a single purchaser were 'forced' with respect to the purchase of a tied item, the resultant impact on competition would not be sufficient to warrant the concern of antitrust law." Jefferson Parish Hospital District No. 2. V. Hyde, 466 U.S. 2, 16; 104 S. Ct. 1551; 80 L. Ed. 2d 20 (1984). "Those few instances in which protests suggest that [defendant] took advantage of a special preference for its product cannot by themselves demonstrate significant…market power - the power to coerce an 'appreciable' number of buyers." Grappone, Inc. v. Subaru of New England, Inc. 858 F.2d 792, 798 (1st Cir. 1988). See also Reisner v. General Motors Corp., 511 F. Supp. 1167 (S.D.N.Y. 1981), aff'd on other grounds, 671 F.2d 91 (2d Cir. 1982), cert. denied, 459 U.S. 858 (1982)(involved one buyer); 305 East 24th Owners Corp. v. Parman Co.,714 F.Supp. 1296 (S.D.N.Y. 1989)($300,000 of tied sales of management services to one building not violation of antitrust law); Kingsport Motors, Inc. v. Chrysler Motors Corp., 644 F. 2d 566 (6th Cir. 1981) (forced one dealer to buy facilities from defendant and no evidence that there was any tie with any other purchaser); Davis v. Marathon Oil Co., 528 F.2d 395, 402 (6th Cir.) cert. denied, 429 U.S. 823 (1976); Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215, 1236 (8th Cir. 1987), cert. denied, 484 U.S. 1026 (1988); Taggart v. Rutledge, 657 F. Supp. 1420, 1448 (D. Mont. 1987), aff'd mem., 852 F.2d 1290 (9th Cir. 1988) (one lessee dealer required to purchase gasoline from lessor not an illegal tie even though tied sales exceeded $100,000).

Standing

A private plaintiff must show that it suffered injury-in-fact, that the injury was proximately caused by the antitrust violation and that the injury-in-fact is of a type the antitrust laws were meant to prevent i.e. preservation of competitive markets. In Fox v. Comprehensive Accounting Corp., 1984-1 Trade Cas. 65993 (N.D. Ill.) there was no injury-in-fact unless there was a rival supplier who charged less for the same processing services. Paying more than the prevailing market price for a tied product does not establish injury unless the sum of tying and tied prices exceeds the market price." Areeda 1702. It is improper to presume injury-in-fact even when a defendant has market power. It is possible that such a defendant charged no more for a tied bundle than the sum of prices charged separately by an alternative seller of equal goods. Areeda 1766.

"Tying can sometimes bring about higher market prices that injure buyers in fact; this is antitrust injury…But in most tying cases a plaintiff buyer claims not that market prices have been wrongly elevated but only that tying forced him to pay above-market prices for the tied product. Increasingly, however, the courts recognize that an illegal tie does not actually injure a buyer unless the sum of prices for tying and tied products exceeds the bundle's market value." Areeda 1769.

Defenses

Despite its per se characterization, per se tying cases have consistently permitted, if not consistently approved, justification defenses to the claim at issue. Areeda 1760. Defenses customarily relied on to justify a tying arrangement are protection of goodwill from diminishment by use of less effective products in connection with the operation of the tying product [IBM v. United States, 298 U.S. 131 (1936)]; preventing dealers from substituting inferior quality goods to avoid injury to goodwill and a "free ride" on the seller's brand investments [Kentucky Fried Chicken v. Diversified Packaging, 549 F.2d 368 (5th Cir.1977) Baker v. Simmons Co., 307 F.2d 458 (1st Cir.1962)]; avoiding damage to reputation from dealers palming off inferior products to ultimate consumers [FTC v. Sinclair Refining Co., 261 U.S. 463 (1923)]; protecting trade secrets [Areeda 1761d; Esposito v. Mister Softee, 1980-1 Trade Cas. 63,089 (E.D.N.Y.1979)]; cost savings [United States v. Loew's Inc., 371 U.S. 38, 44 (1962)]; or appropriating larger share of tied market from tied market monopolist by increasing price competition [Areeda 1764b].