Unpacking Antitrust: What Is a Negative Tying Agreement Under the Federal Antitrust Laws?
April 20, 2023
The Short Answer: Negative tying is where a seller conditions the sale of one product (the Tying Product) on the buyer agreeing not to purchase a second product (the Tied Product) from a competing seller.
Why Is That Called A “Negative” Tie?
A positive tie is where a seller conditions the sale of the Tying Product on an agreement that the buyer also purchase the Tied Product from that same seller. A classic example is a printer manufacturer who ties its printers to its ink cartridges—compelling buyers who want the printer to buy the ink cartridges too.
A negative tie, on the other hand, requires the buyer to agree not to do something, i.e., not to purchase the ink cartridges from a competing seller of ink cartridges.
Why Is a Negative Tying Arrangement Anticompetitive?
An illegal negative tie stifles competition on the merits for the Tied Product. In our example, competing sellers of ink cartridges are foreclosed from competing based on the quality or price of their cartridges because buyers are prevented from purchasing ink cartridges from them by the seller who created the tie.
What Gives the Seller the Ability to Force the Tie?
Buyers accept ties because the seller has some economic power with respect to the Tying Product. In layman’s terms, using our example, the seller’s printers have unique features or are very popular or otherwise desirable, causing buyers to favor them over a competing product.
Think of a dentist: you hate dentists, but you have to go. You’ve finally found a dentist who, unlike all other dentists in your area, is gentle and non-judgmental. To become a regular patient of the dentist, you must also buy homecare products directly from her office. That’s a tie and, although you’d rather buy toothpaste and floss from the drugstore where there are more options and products are cheaper, you buy everything from the dentist because you really like her a lot.
There’s considerable confusion about the “economic power” element because courts and lawyers sometimes refer to the requisite economic ability as “market power.” More accurately, a plaintiff doesn’t need to show “market power”—only some “appreciable economic power” with respect to the Tying Product.
What’s the difference? Appreciable economic power is a lesser standard than market power. Market power can typically be presumed based on barriers to entry and a large market share, which is used as a proxy for dominance (often something like 60%), but economic power may be presumed based on product differentiation or the desirability of a product without dominance.
Besides Appreciable Economic Power Over the Tying Product, What are the Other Elements of Negative Tying?
- Two distinct products: the tying product and the tied product aren’t substitutes for one another—in other words, they’re different products sold in two different relevant markets. In our example, you cannot substitute a printer for ink cartridges, so they constitute two separate products.
- A coerced tie: the seller “forces or coerces” a buyer to accept the tie, i.e., to not purchase the negatively-tied product from a competing seller. A contractual requirement to accept the tie can satisfy this element.
- A “not insubstantial amount of commerce” is affected: a more than de minimus amount of interstate commerce must be affected by the tie. The bar here is low: a few hundred dollars may not be enough, but amounts as low as $10,000 have been deemed sufficient.
Can There Be More Than One Negatively-Tied Product?
Yes. A seller could condition the sale of a Tying Product on the buyer’s agreement not to purchase Products A, B, C or D from a competing seller. This is the “negative” version of “full-line forcing” or “bundling” where a seller conditions the sale of a Tying Product on the buyer’s agreement to buy a complete line of products or a bundle of products from the seller who created the tie.
Are Negative Tying Arrangements Illegal Per Se?
Under Section 1, a negative tie may be illegal per se if its anticompetitive effects are obvious and the plaintiff can meet the elements of a per se tying claim (two distinct products, appreciable economic power over the Tying Product, coercion, and affected interstate commerce).
According to the FTC,
Although the Supreme Court has treated some tie-ins as per se illegal in the past, lower courts have started to apply the more flexible "rule of reason" to assess the competitive effects of tied sales. Cases turn on particular factual settings, but the general rule is that tying products raises antitrust questions when it restricts competition without providing benefits to consumers.
Offering products together as part of a package can benefit consumers who like the convenience of buying several items at the same time. Offering products together can also reduce the manufacturer's costs for packaging, shipping, and promoting the products. Of course, some consumers might prefer to buy products separately, and when they are offered only as part of a package, it can be more difficult for consumers to buy only what they want.
Negative tying may also constitute the anticompetitive conduct necessary to support a Section 2 claim of monopolization or attempted monopolization.