What is a Monopolization Claim Under the Federal Antitrust Laws?

If you—or a competitor—has a sizeable share of the market, your (or your competitor’s) conduct might be a monopolist subject to Section 2 of the Sherman Act. Outside the United States, a firm with this extreme market share is called “dominant.”

You can read our article describing the elements of monopolization at The Antitrust Attorney Blog here.

In the United States, it is illegal for any person or entity to “monopolize any part of the trade or commerce among the several states, or with foreign nations.” But just because one might be a monopolist doesn’t mean the law has been violated. That is, it isn’t illegal under the U.S. antitrust laws to be a monopolist in and of itself. A monopolist runs into trouble when it uses its monopoly power or obtains or enhances its market share in an improper way. Beware, though, because there is a fine line between rigorous competition on the merits and anticompetitive monopolist conduct.

Claims under Section 2 require:

  1. The possession of monopoly power in the relevant market.
  2. The willful acquisition or maintenance of that power as distinguished from attaining it by having a superior product, business acumen, or even an accident of history

As you can see, these elements still don’t tell you much about whether you have a claim or whether you risk a claim. Let’s unpack them:

1. The possession of monopoly power in the relevant market.

To determine whether an entity has market power, you first have to define the relevant market. But the depth of the analysis will depend on the effects of the conduct at issue. As the Supreme Court puts it, defining the market is a means, not an end, of antitrust analysis. So the more clear the detrimental effects of the conduct, the less a court (or agency) will need to focus on defining the market.

The relevant market

Defining a relevant market requires analyzing two dimensions: (1) the product or service dimension, and (2) the geographic dimension. In each dimension, the purpose is to determine the “area of effective competition.” This can be more difficult than you think. For example, some products are not perfect substitutes, but do compete.

Product/Service Dimension. In technical antitrust economics parlance, the market is defined by reference to “cross-elasticity of demand” and “interchangeability.” Cross-elasticity concerns whether a price change of one product will alter the demand for another. Interchangeability concerns more practical factors, such as the purpose and characteristics of a product. For example, laptops and tablets are similar, but different products. Some people prefer laptops, while others prefer tablets. Some might even have both. But you can be sure that if the price of tablets doubled overnight but laptops remained the same price, demand would go up for laptops.

Geographic Dimension. The scope of the geographic market may be important, particularly in hospital and healthcare cases where the geographic market is often narrow. Geographic markets can be analyzed using either qualitative and quantitative methods (or both). A qualitative analysis would look at where competitors market products, regulatory requirements that affect the flow of commerce, transportation limitations, etc. A commonly used quantitative analysis is SSNIP (or “Small but Significant and Nontransitory Increase in Price”), which uses a hypothetical monopolist to determine mathematically whether that monopolist could impose a significant increase in price in a given area.

Monopoly power

Monopoly power is the power to control price (or output) or to exclude competition within the affected market.

Monopoly power is typically, but not always, determined by market share, but not by any particular percentage. A number of factors can affect the threshold market share, such as barriers to entry and market concentration. As a general guideline, courts will typically not find a firm with less than seventy percent market share to have market power.

There are exceptions, however, for unique markets in which the target firm has market power for some reason other than reflected in its market share. Thus, market power can be presumed without analyzing market share in some cases, such as a government entity exercising its regulatory control over a market in which it also competes as a commercial participant. The exercise of market power can be seen directly under those circumstances.

2. The willful acquisition or maintenance of that power

As noted above, holding market power is not itself illegal. A monopolist must willfully act to acquire or maintain that power—rather than gain it through competition on the merits, business acumen, or historical accident.

But what that means, exactly, is subject to disagreement among courts, scholars, and antitrust commentators. One thing is for sure: the conduct must harm competition in order to qualify.

Some categories are easy: exclusionary boycotts, tying, and unlawful exclusive dealing. Other categories of conduct are more complicated and go beyond the standard analysis—and become something more like the rule of reason analysis used for conspiracies to restrain trade under Section 1 of the Sherman Act: whether the procompetitive benefits outweigh the anticompetitive effects, and whether there are legitimate business justifications for the conduct.

In most cases, determining whether your company or your competitor is engaging in unlawful monopolistic conduct requires the expertise of an antitrust attorney.

3. Additional Considerations

There are different types of claims that can be brought under Section 2 of the Sherman Act, such as attempted monopolization, joint monopolization, and conspiracy to monopolize. For the most part, these claims have a similar analysis with slightly different (or additional) elements.

Monopolization claims are not easy to make and are often difficult to prove, but a successful result will often be severe. They create significant risk for defendants and require great care and expertise to litigate. If you are considering or potentially facing a monopolization claim, contact us today.