What Are the Elements of a Per Se Illegal Tying Claim Under the Antitrust Laws?
When a seller requires buyers to purchase a second product or service as a condition of obtaining a first product or service, it may run afoul of the federal antitrust laws. This is called a tying arrangement or tying agreement.
Importantly, unlike other selling conditions like loyalty discounts, bundling, and exclusive dealing, for example, tying arrangements may, under certain situations, create per se antitrust liability. This departure from these other “vertical” agreements is due largely to the coercive aspect of tying that creates an all-or-nothing proposition for customers and may successfully foreclose competitors from competing to serve those customers.
Classifying an antitrust claim as a per se antitrust violation is significant because the plaintiff need not show anticompetitive harm as the law presumes that per se antitrust violations create anticompetitive harm with no redeeming competitive value. Per se antitrust violations are typically limited to price-fixing, market allocation, bid-rigging, and, as explained here, certain forms of tying.
A typical tying arrangement is when a seller with market power for a product (the “tying” item) requires any customer buying that item to also purchase a second item (the “tied” item). The market for the tied item is usually competitive and the seller is using its market power for the first item to increase sales in the competitive market for the second item.
This tying arrangement may present competitive problems because alternative sellers of the second item—the tied product—may find themselves foreclosed from competing because buyers are coerced into buying a product from the first seller because the buyers may need the product in which the seller has market power (the first product). It is the only way buyers can obtain it—by also buying the first product from the seller.
Although the explanation above refers to products, tying arrangements may include either products or services.
Below are the elements that a plaintiff must prove to prevail on a tying claim as a per se antitrust violation:
- The two products or services must, in fact, be separate products or services. In many cases a plaintiff can easily satisfy this element because the products or services are obviously separate products with separate demand and existences. But in some situations, the products or services work so closely together that it isn’t at all clear whether they are separate or one.
- Coercion: A buyer can only obtain the second product or service by purchasing the first product or service. By contrast, a bundling arrangement is one where the seller offers buyers a discount for purchasing two or more products or services together, but the buyer may still purchase them separately (without the discount).
- Market power: The seller’s market power for the first item (the tying product or service) must “appreciably restrain free competition” in the market for the second item (the tied product or service).
- Substantiality: The tying arrangement must affect a “not insubstantial” amount of commerce in the market for the second product or service. The level of “substantial” for this element is not great, but an arrangement with limited impact on the competitive market may lead a court to dismiss the claim under this element.
- The seller must have an economic interest in the two items (products or services) that it offers.
You can find additional information about tying arrangements at The Antitrust Attorney Blog.
If you are considering offering products or services together or are a customer or competitor of a company with a tying arrangement, please call us at Bona Law PC if you have any questions.
Bona Law PC is a boutique firm that focuses on (1) antitrust and competition law; (2) business and real-estate litigation; (3) appeals; and (4) challenges to government conduct. You can reach us at 858-964-4589.