Antitrust and Bundled Discounts: How do I Apply the Discount-Attribution Test?
Antitrust and Bundled Discounts: How do I apply the Discount-Attribution Test?
A common test that courts utilize to determine whether a bundled discount violates the antitrust laws is called the discount-attribution test. This test was applied most prominently (so far) by the United States Court of Appeals for the Ninth Circuit in Cascade Health Solutions v. Peacehealth, 515 F.3d 973 (updated Feb. 1, 2008).
What is a Bundled Discount?
A bundled discount, sometimes called a bundled rebate, occurs when a seller that sells more than one product or service offers customers discounts that are conditioned upon the customer purchasing multiple or all products or services that are included in the seller’s bundle.
As an example, a seller might sell shampoo, conditioner and soap, each item for $5. So, absent a discount, a customer purchasing all three items from the seller would pay a total of $15. A seller could, for example, offer a bundled discount by selling all three—when purchased together—for a total of $11.
Bundled discounts are common throughout markets and are usually pro-competitive.
But, in certain specific conditions, bundling by a seller may cause anticompetitive harm to a market and may violate the federal antitrust laws.
Market Power. A court is most likely to require that the seller have market power in at least one of the bundled products for there to be any chance of an antitrust violation.
Full Bundle. A court is also almost certainly going to require that the seller be alone in the market in the ability to provide all of the products in the bundle. That is because if a competitor can match the seller by providing all of the products offered in the bundle, anticompetitive harm from the bundle itself is not likely. The reason for this is that the condition that causes the possibility of anticompetitive harm is that the seller can spread discounts among a larger number of products than any competitor. So, in these instances, an equally efficient competitor may not be able to compete effectively because they only produce some but not all of the products in the bundle.
Antitrust Injury. An antitrust plaintiff must also prove antitrust injury.
What is the Discount-Attribution Test?
To determine whether a bundled discount violates the antitrust laws, courts may apply what is called the discount-attribution test. The law of bundled discounting is still developing, so courts are not unanimous in applying the discount-attribution test. But it is the most common test and is likely here to stay.
Of course, if the United States Supreme Court takes up a bundling antitrust case, they may or may not apply the discount-attribution test.
Here is how the test works:
The Ninth Circuit described it like this in Peacehealth:
“Under this standard, the full amount of the discounts given by the defendant on the bundle are allocated to the competitive product or products. If the resulting price of the competitive product or products is below the defendant’s incremental cost to produce them, the trier of fact may find that the bundled discount is exclusionary for the purpose of § 2. This standard makes the defendant’s bundled discounts legal unless the discounts have the potential to exclude a hypothetical equally efficient producer of the competitive product.” (slip 1607).
The purpose of this test is to allow a court to determine whether the alleged anticompetitive conduct—the bundled discount—forecloses a “hypothetical equally efficient competitor” from competition.
A plaintiff or government entity could bring a bundling claim either or both Sections 1 and 2 of the Sherman Act. A Section 2 claim, premised on monopolization or attempted monopolization, would likely require a showing of greater market power than a Section 1 Sherman Act claim, which applies to conspiracies to restrain trade.