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THE LATEST: US Steel’s Section 337 Antitrust Claim Rejected by ITC Commissioners

The US International Trade Commission (ITC) issued an opinion dismissing United States Steel Corporation’s antitrust claim made under Section 337 of the Tariff Act of 1930 against several Chinese steel manufacturers or distributors, ruling that a complainant must show an antitrust injury even in a trade case.

  • On Monday, March 19, three of the ITC’s four sitting commissioners upheld an administrative law judge’s (ALJ) decision to eliminate the antitrust claim from US Steel’s trade case against Chinese steel manufacturers.
  • US Steel’s claims were made pursuant to Section 337 of the Tariff Act of 1930. Section 337 has primarily been used by US companies to bar the import of items that infringe upon intellectual property rights. A violation of Section 337 requires a showing of “[u]nfair methods of competition [or] unfair acts in the importation of articles.”
  • US Steel took a rather novel approach and based one of its Section 337 claims on Section 1 of the Sherman Act. Specifically, US Steel alleged a conspiracy between the Chinese manufacturers to fix prices at below-market prices and control output and export volumes. Though US Steel based its claim on the Sherman Act, it argued before the ALJ and the ITC that it did not need to show antitrust injury to sustain its antitrust claim. US Steel reasoned that because Section 337 is designed to protect American companies and workers, it needed only show harm to those groups.
  • In November 2016, an ALJ granted the Chinese manufacturers’ motion to dismiss the antitrust claims, confirming that US Steel is required to show antitrust injury to state an antitrust claim under Section 337.
  • The ITC affirmed the ALJ’s dismissal of US Steel’s antitrust claim because it did not meet the pleading requirements of the Sherman Act under substantive federal antitrust law; such an antitrust claim requires antitrust injury to be alleged. The ITC explained that it relies on existing bodies of substantive federal law to avoid conflicts with federal precedent.
  • Under US antitrust law, for US Steel to properly allege antitrust injury on the allegation that its competitors fixed prices at below-market prices, the below-market pricing must be predatory. That is, US Steel would be required to prove (a) below-cost pricing and (b) that the Chinese steel manufacturers had a dangerous chance of recouping their losses. US Steel did not—and conceded it could not—satisfy the pleading standard for predatory pricing.


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DOJ and FTC to Hold Conditional Pricing Practices Public Workshop

The U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) announced on Tuesday, May 6, that the agencies will jointly hold a public workshop on June 23, 2014, to consider the economic effects and antitrust law treatment of conditional pricing arrangements.

Conditional pricing arrangements, such as loyalty discounts or bundled product discounts, are programs through which a seller may discount prices based upon a buyer purchasing specific volumes of or combinations of products. Loyalty discounts are practices by which a seller charges a buyer a lower price for purchasing a certain volume of a product or products. In bundling, another common pricing arrangement, a seller may offer several products for sale as one combined product, often charging less for the combined product than the sum of the prices of the component products.

Courts have been concerned that loyalty discounts and bundled discounting could be anticompetitive if utilized to exclude competitors from a market or to facilitate a predatory pricing scheme.

Despite these concerns, loyalty discounts and product bundling can also be procompetitive. Both programs can produce efficiencies. For example, by selling a greater volume of products or certain products together, a firm may reduce shipping or marketing costs. Further, these practices decrease prices through discounts, and courts have long recognized that “cutting prices to increase business often is the very essence of competition.”

No clear legal standard has been established for determining which conditional pricing arrangements are anticompetitive. For loyalty discounts, courts have attempted to articulate a standard by evaluating the economic theory that loyalty programs can facilitate exclusive dealing or predatory pricing schemes. For bundled discount practices, courts are split among three different legal standards, and a fourth was recommended by the Antitrust Modernization Commission in 2007.

The agencies have welcomed the public to submit comments on conditional pricing practices on its website. Comments are being accepted through August 22, 2014.

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FTC Commissioner Wright Weighs In On Loyalty Discount Programs

by Daniel Powers

In a recent speech, Federal Trade Commission (FTC) Commissioner Joshua Wright jumped into the debate over the proper approach for analyzing the potential anticompetitive effects of loyalty discount programs.  Commissioner Wright signaled his strong preference for an approach based on exclusive dealing law rather than a framework rooted in a predatory pricing analysis.  Wright contended that recent FTC cases appeared to apply such an approach, and he asserted his belief that the Commission should consistently adopt this analytical approach in future cases.

The proper analytical approach to apply in loyalty discount cases has drawn attention recently as a result of the Third Circuit’s opinion in ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Circuit 2012).  In that case, ZF Meritor brought a monopolization claim against Eaton related to Eaton’s contracts in the heavy-duty truck transmissions market.  In the late 1980s, Meritor first entered the market; Eaton had been the sole supplier for more than 30 years.  Within a decade, Meritor had gained approximately 17 percent share and had plans for further expansion tied to a joint venture with a German company that offered a transmission product not previously sold in the North American market. Eaton responded by entering into “long-term agreements” with the four direct purchasers of heavy-duty truck transmissions.  These agreements provided loyalty rebates to buyers that were conditioned on obtaining a certain specified share of the buyer’s needs – ranging from 70 to more than 90 percent – from Eaton.  ZF Meritor watched its market share drop dramatically following the conclusion of these agreements and ultimately exited the market after concluding that it would be unable to obtain and maintain the minimum market share necessary for viability.  The company’s monopolization suit against Eaton claimed that its competitive efforts were undermined by Eaton’s loyalty discount programs.

Eaton characterized ZF Meritor’s claim as one involving discounted pricing and contended that the proper test to assess any potential anticompetitive effect of this activity was the one elaborated by the Supreme Court in Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).  According to Eaton, the Brooke Group standard required ZF Meritor to show that Eaton’s prices were below a relevant measure of Eaton’s costs.  The Third Circuit surprised many when it refused to apply the Brooke Group test.  The court stated that Brooke Group was appropriate where “pricing itself operat[es] as the exclusionary tool,” but it was not the proper standard where, in this case, price was not the predominant exclusionary mechanism. 696 F.3d at 275.  The Supreme Court chose not to hear Eaton’s appeal of the Third Circuit’s decision. 

Commissioner Wright approved of the Third Circuit’s approach, indicating that he believes an exclusive dealing approach focused on how the challenged activities operate to raise rivals’ costs better accords with current economic research.  Not all economists agree.  A large group of economists submitted an amicus brief to the Supreme Court urging it to review the Third Circuit’s decision in ZF Meritor.  Commissioner Wright said, however, that he believed that the arguments in [...]

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