Does the Group Boycott Violate the Antitrust Laws? Five Questions You Should Ask
The US Supreme Court has historically defined a group boycott as a concerted refusal to deal, or a group action designed to pressure another party into doing something by withholding or enlisting others to withhold patronage or services from the target. The Court, however, limits this doctrine to commercially motivated boycotts.
In essence, a group boycott is a commercially motivated action that a set of entities takes against their competitors, customers, or suppliers. The offending parties are often competitors, but may include a group of competitors and one or more entities that are vertical to competitors—typically customers or suppliers.
The group-boycott legal doctrine has taken several twists and turns over the years and may still yet evolve. If you or your client are concerned about group boycotts (as either alleged perpetrator or victim), below are some questions that you should consider. Please call Bona Law in California or New York to discuss further.
Some of the questions below are designed to determine whether a court or antitrust agency will analyze the restraint under the per se rule or the rule of reason. The consequences of this determination can—sometimes—make all the difference. If you want to learn more about the differences between these two standards, you can read our article about antitrust standards. You might also peruse our antitrust blog articles that involve the per se antitrust standard.
1. Is There an Agreement?
For Section 1 of the Sherman act to apply, a plaintiff must show that defendants’ conduct involves a concerted action—an agreement. The question of an agreement or conspiracy is easy in the abstract (unless you are talking to law professors or economists), but not always simple for courts to decide in practice.
2. Does the Conduct Involve a Commercial Rather Than a Social or Political Purpose?
Courts have systematically limited group boycotts to commercially motivated actions, usually by a group of competitors against other competitors, customers or suppliers. In 1990, the Supreme Court in F.T.C. v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411, addressed this issue, holding that the challenged arrangement (a price motivated agreement among certain attorneys to boycott a program to defend indigent clients until reimbursement rates were raised to a reasonable level) was a commercially motivated boycott.
By contrast, the Sixth Circuit in Basset v. National Collegiate Athletic Ass’n, 528 F.3d 426 (6th Cir. 2008) determined that NCAA rules prohibiting recruiting inducements to prospective student athletes did not involve a commercial activity because they were designed to promote and ensure competitiveness among NCAA member schools. Furthermore, in NAACP v. Claiborne Hardware Co., 458 U.S. 886 (1982), the Court concluded that even though the case involved a group boycott, it was not intended to destroy legitimate competition, so a rule of reason analysis was appropriate.
3. Do the Entities That Make up the Alleged Group Boycott Have Market Power or Horizontal Control Over an Essential Facility or Resource?
If the group of entities that are engaged in the group boycott are competitors with market power or with control over an essential facility or resource, a court is quite likely to apply the per se rule to the boycott conduct, even if it is non-price restraint.
There is a different doctrine called the refusal to deal doctrine in which a monopolist that controls an essential facility or otherwise has a requirement to deal with competitors is subject to Section 2 of the Sherman Act. You can read our article about refusal to deal antitrust issues here. That doctrine often involves allegations about an essential facility or resource too.
The difference between a group boycott and a straight refusal to deal monopoly claim is that in the group boycott, there are multiple entities that combine to exclude or otherwise inhibit another party. When that “concerted” boycott involves market power or horizontal control over an essential facility or resource, courts almost always analyze it under the per se rule.
4. Is the Alleged Agreement Horizontal or Vertical?
Courts may analyze group boycotts under either the per se rule or the rule of reason. You can read more about the distinction between these standards (and the quick look approach) here.
Courts will usually apply the per se standard to horizontal group boycotts—that is, agreements among competitors to boycott some third party, whether a competitor or someone up or down the vertical chain.
In a recent example (2015), the Fifth Circuit in MM Steel L.P v. JSW Steel (USA) Inc. 806 F.3d 835, held that the per se rule applied to horizontal group boycotts between incumbent distributors to cause "suppliers or customers to deny relationships the competitors need in the competitive struggle."
In NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998), the Supreme Court established the distinction between horizontal and vertical group boycotts. Here, the Court held that an agreement by a company to buy from a particular supplier (defendant), while refusing at the same time to buy from a different supplier (plaintiff) is an “inherently” vertical restraint subject to a rule of reason analysis, instead of the per se rule.
5. Is There a Plausible Procompetitive Justification?
Although horizontal group boycotts are typically per se antitrust violations, there are instances in which, under limited exceptions, courts will instead apply the rule of reason.
For example, in Craftsmen Limousine, Inc. v. Ford Motor Co., 363 F 3d. 761 (8th Cir. 2004), the Eighth Circuit held that an agreement between Ford and a trade association of limousine converters to prevent the plaintiff from advertising its products in the trade association publications was motivated by safety concerns. Thus, the court applied the rule of reason even though this was a (non-price) horizontal conspiracy among competitors.
Other cases where courts have applied the rule of reason analysis to non-price horizontal group boycotts involved government policy objectives, legitimate business objectives by the boycotting parties, or standards setting, among others.
Thus, when a horizontal group boycott does not involve a “naked” restriction of competition, and the defendant is able to show certain plausible justifications, courts will sometimes apply the rule of reason analysis, rather than the per se legal standard, to determine the action’s legality.