Indiana Law Review


Indiana Law Review
Volume 20 1987 Number 3

Rethinking Price-Fixing

Richard S. Wirtz*

I. Introduction

"Price-fixing" by competitors is unlawful per se. 1 This is the best-

known rule in antitrust—the one most often enforced in criminal pro-
ceedings, and the only one that appreciable numbers of businessmen

have been convicted and sentenced to prison for violating. Through years

of judicial application to agreements among competitors on the price
of what they sell, the rule has acquired something approaching the

dignity of a statute.

The rule began as a prohibition upon agreements on price among
competitors with substantial collective market power. 2 In United States

v. Socony- Vacuum Oil Co.,3 the United States Supreme Court, extrap-
olating from its earlier decisions, laid down a broader rule: "[A] com-
bination formed for the purpose and with the effect of raising, depressing,

fixing, pegging, or stabilizing the price of a commodity in interstate or

*Associate Professor of Law, University of Tennessee College of Law. B.A., Amherst

College, 1961; M.P.A., Princeton University, 1963; J.D., Stanford University, 1970.

I am indebted to Barry Turner for his contributions to this Article at its inception
and to Joseph Bauer, James Dabney, David Kaserman and Paul Rogers for their valuable

comments as it progressed. Thanks also to Sue Haycox, Thomas Lauria and Thomas
Overton for their very able help in research.

•Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332, 342-48 (1982); Catalano,

Inc. v. Target Sales, Inc., 446 U.S. 643, 647-50 (1980); Broadcast Music, Inc. v. CBS,

Inc., 441 U.S. 1, 7-9 (1979); United States v. Socony-Vacuum Oil Co., 310 U.S. 150,

223 (1940).

In antitrust cases and commentary concerning horizontal restraints, the term "price-

fixing" is used in two senses. In the broad sense, it encompasses all arrangements unlawful

per se under the rule of the Socony case (see infra text accompanying note 3). In the

narrow sense, it refers to agreements among competitors on the price of what they sell.
When the term is used in this Article in the broad sense, it appears in quotation marks.

2See generally United States v. Trenton Potteries Co., 273 U.S. 392 (1927); United

States v. Joint Traffic Ass'n, 171 U.S. 505 (1898); United States v. Trans-Missouri Freight

Ass'n, 166 U.S. 290 (1897); United States v. Addyston Pipe & Steel Co., 85 F. 271 (6th
Cir. 1898), modified, 175 U.S. 211 (1899).

3310 U.S. 150 (1940).

591



592 INDIANA LAW REVIEW [Vol. 20:591

foreign commerce is illegal per se." 4 In dictum, the Court went an
important step further. To prove per se unlawful "price-fixing" under
section 1 of the Sherman Act, 5 Justice Douglas wrote for the Court in

Socony, neither power nor effect need be shown:

It is the "contract, combination or conspiracy, in restraint of

trade or commerce" which § 1 of the Act strikes down, whether
the concerted activity be wholly nascent or abortive on the one

hand, or successful on the other ... [A] conspiracy to fix prices

violates § 1 . . . though no overt act is shown, though it is not
established that the conspirators had the means available for the

accomplishment of their objective, and though the conspiracy

embraced but a part of the interstate or foreign commerce in
the commodity . . . [Price-fixing agreements] are all banned

because of their actual or potential threat to the central nervous

system of the economy. 6

In subsequent cases involving agreements among competitors to fix
the price of what they sold, the Court routinely applied the per se rule

against "price-fixing," holding the agreements unlawful with and without

proof of power and effect, and regardless of their purported justifi-

cations.
7 In 1951, in Kiefer-Stewart Co. v. Joseph E. Seagram & Sons,

"Id. at 223.

The courts have applied the per se rule against "price-fixing" to a wide variety of

horizontal restraints on price competition, including agreements to restrict or eliminate

price advertising (United States v. Parke Davis & Co., 362 U.S. 29 (I960)), trade credit
(Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980)K quantity discounts (United

States v. United Liquors Corp., 149 F. Supp. 609 (W.D. Tenn. 1956)), and trading stamps

(United States v. Gasoline Retailers Ass'n, 285 F.2d 688 (7th Cir. 1961)); agreements on

minimum markups (California Retail Grocers & Merchants Ass'n v. United States, 139
F.2d 978 (9th Cir. 1944)); basing-point pricing systems (FTC v. Cement Inst., 333 U.S.
683 (1948)); agreements to circulate uniform list prices (Plymouth Dealers' Ass'n v. United

States, 279 F.2d 129 (9th Cir. I960)) and "suggested" prices (Northern Cal. Pharmaceutical

Ass'n v. United States, 306 F.2d 379 (9th Cir. 1962)); and boycotts of discounters (United

States v. General Motors Corp., 384 U.S. 127 (1966)).

The rule has also been applied to a class of agreements that are beyond the scope

of the term as used in this Article—agreements among firms on the price they will pay
for what they buy. See, e.g., Mandeville Island Farms, Inc. v. American Crystal Sugar

Co., 334 U.S. 219 (1948).
5Ch. 647, 26 Stat. 209 (1890) (current version codified at 15 U.S.C. § 1 (1982)).
6Socony, 310 U.S. at 224 n.59.
7United States v. McKesson & Robbins, Inc., 351 U.S. 305 (1956); United States

v. New Wrinkle, Inc., 342 U.S. 371 (1952); Kiefer-Stewart Co. v. Joseph E. Seagram &
Sons, 340 U.S. 211 (1951); United States v. National Ass'n of Real Estate Boards, 339

U.S. 485 (1950); United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948); United

States v. United States Gypsum Co., 333 U.S. 364 (1948); United States v. Line Material
Co., 333 U.S. 287 (1948); United States v. Frankfort Distilleries, Inc., 324 U.S. 293 (1945);

United States v. Masonite Corp., 316 U.S. 265 (1942). See generally Comment, The Per



1987] PRICE-FIXING 593

Inc.
,

8 the Court unanimously affirmed a judgment against two competing

distillers for setting maximum prices by agreement, on a record "devoid
of evidence . . . that the defendants were capable of . . . influencing

the market price of whisky or that they [had] actually produced an

effect on the market. . . ." 9 By 1956, the controlling doctrine could be

summarized in sweeping terms: "[Price-fixing] is conclusively presumed

to be unreasonable . . . [regardless of] whether the motives of the

participants are good or evil; . . . whether the participants possess market

control; whether the amount of interstate commerce affected is large or

small; or whether the effect of the agreement is to raise or to decrease

prices."
10

Unlike most of antitrust law, "thou shalt not agree with thy com-

petitors on price" is easy to understand and remember. The essential
wisdom of the rule is plain. For a generation after Socony the Court

acknowledged no exceptions, other than cases involving conduct au-

thorized by other federal statutes 11 or exempted from Sherman Act

condemnation by state action. 12 PrQ-Socony decisions, insofar as they

qualified the general prohibition against horizontal agreements on price,

were ignored. 13 Exceptions recognized by lower courts in reported cases 14

were exceedingly rare.

Se Illegality of Price-Fixing—Sans Power, Purpose, or Effect, 19 U. Chi. L. Rev. 837,
859-60 & nn. 127-29 (1952).

8340 U.S. 211 (1951).
9See Comment, supra note 7, at 848.

,0United States v. McKesson & Robbins, Inc., 351 U.S. 305, 310 (1956) (footnotes
omitted).

n See, e.g., Gordon v. New York Stock Exch., Inc., 422 U.S. 659 (1975) (stock
exchange agreements fixing commission rates held to be immune from antitrust attack by

virtue of grant of regulatory powers to the SEC in the Securities Exchange Act of 1934);
United States v. National Ass'n of Sec. Dealers, 422 U.S. 694 (1974) (implied immunity

from antitrust liability for certain price-fixing agreements in connection with the distribution

and sale of mutual fund shares held conferred by the Maloney Act of 1938 and the

Investment Company Act of 1940).
l2See, e.g., Parker v. Brown, 317 U.S. 341 (1943) (price-fixing by raisin growers as

part of a comprehensive program of marketing controls authorized by state statute and

supervised by a state commission held not to violate the Sherman Act).
13 In Socony, the Court distinguished the two leading cases sustaining agreements

among competitors on price, Board of Trade v. United States, 246 U.S. 231 (1918)
(Chicago Board of Trade) and Appalachian Coals, Inc. v. United States, 288 U.S. 344

(1933), on the ground that unlike the agreement in Socony—a large-scale buying program
organized by major oil companies to eliminate the ''excess" supply of gasoline on the

market—the agreements in the earlier cases had not been entered into for the purpose or
with the effect of raising the general level of market prices. 310 U.S. at 216, 217. As
the rule announced in Socony evolved into a prohibition against fixing prices, irrespective

of purpose, power, or effect, the Court simply ignored the contrary implications of Chicago

Board of Trade and Appalachian Coals.
u
See, e.g., United States v. Columbia Pictures Corp., 189 F. Supp. 153 (S.D.N.Y.



594 INDIANA LA W REVIEW [Vol. 20:591

Now, in three cases, the Court has reopened the question of per se
illegality for agreements among competitors on price that have some
potential to '"increase economic efficiency and render markets more

rather than less competitive.'" 15 In Broadcast Music, Inc. v. CBS, Inc., 16

the Court unanimously declined to hold a horizontal agreement on price

in the music copyright industry unlawful per se. 17 In Arizona v. Maricopa

County Medical Society, 18 a bare plurality of the Court held two agree-

ments among competing physicians setting maximum fees unlawful per
se, over a vigorous dissent. 19 In the third case, NCAA v. Board of
Regents, 20 seven Justices declared a horizontal agreement on the price

of college football television rights unlawful under the rule of reason,

expressly declining to condemn it under the per se rule. 21

These developments represent a partial triumph for proponents of

the view that the objective of the antitrust laws is to promote economic

efficiency. For more than twenty years, proponents of this view have
contended that agreements among competitors on prices should not
invariably be unlawful because a flat ban condemns, without good reason,

practices capable of contributing significantly to economic efficiency. 22

All four major recent opinions—the majority opinions in Broadcast Music
and NCAA and the plurality and dissenting opinions in Maricopa—treat
economic efficiency as a value entitled to recognition in evaluating the

"competitive significance" of horizontal restraints on price competition

under section 1.

I960); United States v. Morgan, 118 F. Supp. 621 (S.D.N.Y. 1953). The cases are collected

and discussed in Allison, Ambiguous Price Fixing and the Sherman Act: Simplistic Labels

or Unavoidable Analysis?, 16 Houston L. Rev. 761 (1979).
'Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1, 20 (1979) (citing United States

v. United States Gypsum Co., 438 U.S. 422, 441 n.16 (1978)).
I6441 U.S. 1 (1979). -
11
Id. at 10. In determining whether a practice is unlawful per se as price-fixing,

Justice White wrote for the Court, it is not conclusive that "two or more potential

competitors have literally 'fixed' a 'price.'" Id. at 9.
18457 U.S. 332 (1982).
x9
Id. at 357. The dissent, authored by Justice Powell, was joined by Chief Justice

Burger and Justice Rehnquist.
20468 U.S. 85 (1984).
2i
Id. at 100-01, 120.

22The pioneering article is Bork, The Rule of Reason and the Per Se Concept: Price

Fixing and Market Division (parts 1 & 2), 74 Yale L.J. 775 (1965), 75 Yale L.J. 373
(1966). See also R. Bork, The Antitrust Paradox: A Policy at War with Itself 263-
79 (1978); Bowman, Contrasts in Antitrust Theory: II, 65 Colum. L. Rev. 417 (1965);
Easterbrook, Maximum Price Fixing, 48 U. Cm. L. Rev. 886 (1981); Gerhart, The Supreme
Court and Antitrust Analysis: The (Near) Triumph of the Chicago School, 1982 Sup. Ct.

Rev. 319; Liebeler, Intrabrand "Cartels" Under GTE Sylvania, 30 UCLA L. Rev. 1
(1982); Comment, Fixing the Price Fixing Confusion: A Rule of Reason Approach, 92
Yale L.J. 706 (1983).



1987] PRICE-FIXING 595

With respect to the kinds of practices involved in these cases—price-
fixing agreements accompanying potentially procompetitive collaboration

on matters other than price—the law is now seriously muddled. In
Broadcast Music, the Court implied that per se condemnation is reserved

for practices with which the courts have had considerable experience. 23

Shortly thereafter, in Maricopa, the Court held precisely to the contrary,

striking down on traditional principles an agreement on price that was
quite different in some respects from any in the precedents.24 In Maricopa,

the Court seemed to interpret Broadcast Music as holding narrowly that

an agreement among competitors on the price of a product they produce
jointly is not unlawful per se where such an agreement is "necessary

to market the product at all." 25 In NCAA, the Court found that the
competitors' agreement on price was unnecessary to the marketing of

their jointly produced product, but applied the rule of reason never-

theless.
26 Two commentators have summarized the lesson of these cases

this way: "Horizontal price-fixing is always illegal; but not all horizontal

price-fixing is price-fixing, and some types of price-fixing may thus be
upheld." 27

This Article is an appreciation and a critique of the Supreme Court's

exploratory efforts in these cases to reduce the costs of the per se rule

against "price-fixing" in terms of over-deterrence, without destroying

its effectiveness. This Article deals primarily with price-fixing in its narrow

sense—agreements among competitors on specific prices28 or on proce-
dures by which specific prices are fixed.29 All three cases

—

Broadcast

Music, Maricopa, and NCAA—involved agreements of these types. As
will be noted, however, the Court's decisions in these cases have important

implications for the law of "price-fixing" in general.

From the opinions, it is clear that the Court has not embraced the
theory that the antitrust laws exist to promote economic efficiency, but

23441 U.S. at 8, 9, 19 n.33.
24The Court attempted to reconcile the two positions by differentiating between the

application of an established per se rule and the creation of a new one. Explaining that

the facts in Maricopa fell within the established per se rule, the Court went on to state

that "a new per se rule is not justified until the judiciary obtains considerable rule-of-
reason experience with the particular type of restraint challenged." 457 U.S. at 349 &
n.19.

25
Id. at 355-56. The quotation is from Broadcast Music, 441 U.S. at 23.

26468 U.S. at 100, 113-14.

"Marks & Jacobson, Price-Fixing: An Overview, 30 Antitrust Bull. 199, 256 (1985).
2SSee supra note 1. Prohibited agreements that fix specific prices include agreements

on both minimum and maximum prices.
29An example is an agreement among competitors to delegate the function of setting

prices for the group to a single firm. See, e.g., United States v. Masonite Corp., 316

U.S. 265 (1942) (agreement among manufacturers of a patented product to charge no less
than the price fixed by the manufacturer-patentee).



596 INDIANA LA W REVIEW [Vol. 20:591

is instead proceeding on the premise that when competitors conspire or
combine, the law's first concern is to protect the economic interests of

consumers in competition in the marketplace. On this premise, the
appropriate measure of legality in price-fixing cases is not whether the

combination makes a positive or negative contribution to economic

efficiency, but whether it promotes or suppresses competition. The Court's

opinions in this regard are consistent, and its position has strong support

both in the legislative history of the Sherman Act and in the long-
standing tradition of judicial interpretation of the Act.

At the doctrinal level, nothing in these cases implies any relaxation

of the per se rule as applied to conventional agreements among com-
petitors on price. Straight price-fixing, unaccompanied by any other

potentially procompetitive agreement, is per se illegal. The problem

addressed in these cases is the problem of the agreement on price that

functions as part of a larger potentially procompetitive scheme. In this

Article several possible interpretations of the decisions are explored. The

Article concludes that the cases are best read to stand for the proposition

that agreements among competitors on price are unlawful per se, unless
the parties are also engaged in potentially procompetitive collaboration

on matters other than price, and the agreement on price performs some

essential function in that collaboration other than raising prices. Where
those conditions are met, the agreement is ordinarily to be judged under

the rule of reason. It is unlawful per se only if further inquiry discloses

that any potential gains to consumers from the price-fixing are so slight,

in relation to the competitive risks that the costs of rule-of-reason

adjudication outweigh the benefits.

II. The Cases

Two earlier Burger Court decisions supply an important part of the
predicate for the decisions in Broadcast Music, Maricopa, and NCAA.
They are Continental T.V., Inc. v. GTE Sylvania, Inc.,20 in which the
Court abolished a per se rule for the first time in the history of the

Sherman Act, 31 and Actional Society of Professional Engineers v. United

States, 32 in which the Court applied the rule of reason to an arrangement

both lower courts had held unlawful under the broad per se rule of

Socony 33

Provided with a chance to clarify the per se rule announced some

years earlier in United States v. Arnold, Schwinn & Co., 34 the Court

30433 U.S. 36 (1977).
3,
Id. at 58.

32435 U.S. 679 (1978).

"Id. at 695-96.
34388 U.S. 365 (1967). In Schwinn, the Court held that the per se status of vertically

imposed territorial restrictions under § 1 differed depending on whether the restrictions



1987] PRICE-FIXING 597

in Sylvania instead annulled it. Though the Court's holding was limited

to vertical non-price restraints, the explicit recognition in the opinion

that efficiencies that result from a restraint may have a significant bearing
on its reasonableness, and the criteria put forth for the formulation and

evaluation of per se rules, had considerably broader implications.

Throughout its opinion, the Court emphasized competition. In the

evaluation of any class of competitive restraints, Justice Powell wrote

for the Court, "[t]he probability that anticompetitive consequences will

result from [the] practice and the severity of those consequences must

be balanced against its procompetitive consequenses." 35 Vertical non-

price restrictions, he noted, "reduce intrabrand competition by limiting

the number of sellers of a particular produce competing for the business

of a particular group of buyers." 36 On the other hand, such restrictions
may enable manufacturers to realize marketing efficiencies which may
in turn enable them to "compete more effectively" 37 vertical restraints

may facilitate new entry,38 or they may revive a failing or "faltering"
firm. 39

The issue, then, was whether vertical territorial restraints, notwith-

standing their potential competitive virtues, should be held unlawful per

se because they almost invariably restrain some competition. Just five

years earlier, the Court had declared horizontal territorial restraints

unlawful per se. 40 In Sylvania, the Court rejected the argument that

vertical restraints should be similarly classified.41

in question involved a technical restraint on alienation. Sales by a manufacturer to its

distributors subject to territorial restrictions on resale were held to be unlawful per se.

Similar restrictions imposed on distributors "[w]here the manufacturer retains title, do-

minion and risk with respect to the product and the position and function of the dealer . . .

are . . . indistinguishable from those of an agent or salesman of the manufacturer" were

held to be lawful if reasonable. Id. at 379, 380.

"Sylvania, 433 U.S. at 50 n. 16.
i6
Id. at 54.

"Id. at 55.

For example, new manufacturers and manufacturers entering new markets can

use the restrictions in order to induce competent and aggressive retailers to make
the kind of investment of capital and labor that is often required in the distribution

of products unknown to the consumer. Established manufacturers can use them

to induce retailers to engage in promotional activities or to provide service and

repair facilities necessary to the efficient marketing of their products.

Id.

3SId. at 55.

39
Id. at 58 n.29.

40United States v. Topco Assocs., Inc., 405 U.S. 596 (1972). The Court, in an

opinion by Justice Marshall, held that horizontal territorial restraints could not be defended

on the ground that they enhanced interbrand competition: "Our inability to weigh, in
any meaningful sense, destruction of competition in one sector of the economy against

promotion of competition in another sector is one important reason we have formulated
per se rules." Id. at 609-10.

41The Court distinguished Topco, without further explanation, on the ground that



598 INDIANA LAW REVIEW [Vol. 20:591

"[T]he prevailing standard of analysis" in section 1 cases, Justice

Powell wrote for the court, is the rule of reason. 42 Any departure from
that standard "must be based upon demonstrable economic effect rather

than . . . formalistic line drawing."43 The fact that in some instances a

particular practice may be procompetitive on balance does not ensure
rule-of-reason treatment: "a per se rule reflects the judgment that such

cases are not sufficiently common or important to justify the time and
expense necessary to identify them."44 In the case of vertical non-price

restrictions on distribution, however, there was no basis for such a

judgment. Noting that the great weight of scholarly opinion lay against

the Schwinn per se rule,45 that the lower courts had been devoting

considerable ingenuity to devising ways around it,46 and that there was

an almost total lack of support for the rule from any quarter, the Court

overruled it. 47

The Court in Sylvania did not say, nor did it imply, that the primary

concern of antitrust law is the promotion of economic efficiency.

Throughout the opinion, the Court treated efficiency as an instrumental

value—a means to the end of promoting competition. Nor did the Court
"indicate that the per se rule should be limited to those transactions

which do not have any potential for efficiency creation." 48 The closest

the Court came to such a pronouncement (not really very close) was to

state that where a practice has procompetitive potential—perhaps because
it generates efficiencies that enable firms to compete more effectively

—

per se condemnation is inappropriate without a careful weighing of the

costs and benefits.

In the term following Sylvania, the Court decided National Society

of Professional Engineers v. United States.*9 The Society sought to defend

a canon of ethics forbidding its members from engaging in competitive

bidding. Its argument, which emphasized the canon's contribution to

public health and safety, was also in a way an efficiency defense.
Competitive bidding among engineers, it argued, leads to shoddy work-

it concerned horizontal and not vertical restraints. Sylvania, 433 U.S. at 57 n.27.
42
Id. at 49. Justice Powell then quoted the classic formulation of the rule from

Chicago Board of Trade v. United States, 246 U.S. 231, 238 (1918): "The true test of
legality is whether the restraint imposed is such as merely regulates and perhaps thereby

promotes competition or whether it is such as may suppress or even destroy competition."
Sylvania, 433 U.S. at 49.

^Sylvania, 433 U.S. at 58-59. This remark appears to have been directed at the

distinction in Schwinn between sale and non-sale transactions.

"Id.

45
Id. at 47-48, 47 n.13.

46
Id. at 48 & n.14.

47
Id. at 58.

48Liebeler, supra note 22, at 1-2.
49435 U.S. 679 (1978).



1987] PRICE-FIXING 599

manship, which in turn leads to higher project costs and disastrous

structural failures.
50 A ban on competitive bidding would ensure that

consulting engineers would commit the resources necessary to do the

job well, and would yield substantial public benefits in terms of safety

and material well-being. 51

The Court, however, rejected the defense as a "frontal assault on

the basic policy of the Sherman Act." 52 Justice Stevens wrote for the

Court:

The Sherman Act reflects a legislative judgment that ultimately

competition will produce not only lower prices, but also better

goods and services. "The heart of our national economic policy
long has been faith in the value of competition." . . . The

assumption that competition is the best method of allocating
resources in a free market recognizes that all elements of a

bargain—quality, service, safety, and durability—and not just
the immediate cost, are favorably affected by the free opportunity

to select among alternative offers. 53

Of course, individual engineers were free to offer clients high-quality
engineering services. Some clients might well reject these offers; of those,
some might eventually regret it. But under the Sherman Act, neither

the Society nor the Court was free to substitute its judgment for the

clients' as to what they should want.

The Society's defense based on the rule of reason, Justice Stevens
noted, was predicated on a misunderstanding of the rule: "Contrary to

its name, the Rule does not open the field of antitrust inquiry to any

argument in favor of a challenged restraint that may fall within the
realm of reason. Instead, it focuses directly on the challenged restraint's

impact on competitive conditions." 54 The Court had consistently so held
since Standard Oil Co. v. United States,55 the seminal rule-of-reason

case:

From Mr. Justice Brandeis' opinion for the Court in Chicago
Board of Trade to the Court opinion written by Mr. Justice

Powell in [Sylvania], the Court has adhered to the position that

the inquiry mandated by the Rule of Reason is whether the

challenged agreement is one that promotes competition or one

that suppresses competition . . . [T]he purpose of the analysis

50Brief for Petitioner at 27-35.

5i
Id. at 27-35, 54-55.

"Professional Engineers, 435 U.S. at 695.

*Id.

5A
Id. at 688.

55221 U.S. 1 (1911).



600 INDIANA LAW REVIEW [Vol. 20:591

is to form a judgment about the competitive significance of the
restraint; it is not to decide whether a policy favoring competition

is in the public interest . . . , 56

The Society's restraint suppressed competition and did not promote it.
The proffered defense amounted to the assertion that in the defendant's
market, * 'competition itself is unreasonable." 57 Under the Sherman Act,
there could be no such defense. 58

Viewing the Sylvania and Professional Engineers opinions in ret-

rospect, one can see a distinction taking shape between efficiencies that

promote or enhance competition and efficiencies that do not. In the
subsequent opinions dealing with explicit horizontal agreements on price

—

Broadcast Music, Maricopa, and NCAA—the Court affirmed the im-
portance of the distinction, and began to work out its implications for
the law of price-fixing.

A. Broadcast Music, Inc. v. CBS, Inc.

In Broadcast Music,59 the Columbia Broadcasting System attacked

as "price-fixing" the long-established practice of blanket licensing in the

music copyright industry. For many years, owners of copyrights in musical
works had combined to issue blanket copyright licenses through per-

forming rights organizations such as the American Society of Composers,

Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI).60

The blanket license authorized licensees to perform any work in the
licensing organization's inventory for a single fee—usually a flat fee,
but sometimes a fee computed on the licensee's revenues. For many
years, CBS, as proprietor of the CBS television network, had purchased
blanket licenses from ASCAP and BMI. After negotiations for license
renewal broke down in 1969, CBS sued ASCAP, BMI, and their members
and affiliates, contending that blanket licensing violated the Sherman
Act. At the time of suit, ASCAP's inventory included more than three
million works; BMI's contained more than one million.

Blanket licensing necessarily entailed agreement among sellers of
competing products61 on the price of sale. Every blanket licensee bought

rights at a price fixed by a process which eliminated competition among

56Professional Engineers, 435 U.S. at 691-92.

"Id. at 696.

58
Id. Justices Blackmun and Rehnquist concurred separately.

59441 U.S. 1 (1969).

^Unless otherwise indicated, the facts are taken from the opinion of the district

court, CBS, Inc. v. ASCAP, 400 F. Supp. 737 (S.D.N.Y. 1975).
61The district judge found "that musical compositions are substantially interchangeable

and that for any proposed use there are several, if not scores, of compositions which are

equally suitable." Id. at 751-52.



1987] PRICE-FIXING 601

the individual licensors. True, the licensors did not agree on the prices

at which they would separately license their works. Nevertheless, CBS
argued persuasively, blanket licensing clearly presented the normal risks

of price enhancement from pricing-fixing. The copyright owners affiliated

with each defendant had enormous collective leverage and they knew
it.

62 Even assuming they remained willing in fact to issue individual

licenses, the profitability of blanket licensing would tend almost inevitably

to raise the price of those licenses. Such an effect, however, would be

difficult to prove. The whole point of the per se rule was to eliminate

the necessity of detailed economic proof in cases of this kind.63 Unless,

CBS argued, the per se rule's prohibition on agreements among com-
petitors on prices allowed for exceptions—and since Socony in 1940 the
Court had acknowledged none—blanket licensing was unlawful without
regard to any purported justifications.64

Despite the force of these arguments, CBS' position in the lawsuit

was, in some ways, peculiarly unappealing. The practice it was attacking

had unique and well-documented advantages not only for licensors, but

also for many licensees. For firms engaged in small-scale "performances"
of copyrighted musical works—radio stations, roller rinks, night clubs,
concert halls—it was vastly more economical to license performance
rights in bulk than through individual bilateral licenses. On the licensors'
side, there were additional economies in monitoring and enforcement.

The products here, copyright licenses, were creatures of a federal statute

enacted primarily to promote progress in science and useful arts by

establishing financial incentives for the creation and publication of works

of authorship, including musical works.65 To the extent that blanket
licensing helped composers and publishers reach a larger market and

enforce their rights against small users who otherwise would have pur-
chased no license at all, infringing on copyrights, blanket licensing

furthered the policy of the copyright statute.66 Both the Department of

Justice and the lower courts had approved of blanket licensing as a

practical alternative to individual bilateral licensing in the industry. 67 On

62See Brief for Respondent at 62-85, 139-43 & Addendum A.
"See id. at 78-79.
MSee id. at 50-59. BMI argued that "[w]hen presented with joint delegation of

pricing decisions to an agency controlled by a group of competitors, . . . [the] Court has

looked to the purpose, effect and industry context of such agreements, and often upheld

them under the rule of reason." Brief for Petitioner at 18-19. As authority for that
proposition, however, BMI could cite no decision more recent than Appalachian Coals.
See supra note 13.

"See Mazer v. Stein, 347 U.S. 201, 219 (1954); 1 M. Nimmer, Nimmer on Copyright
§ 1.03[A] (1986).

"See Broadcast Music, 441 U.S. at 18-19.
61See id. at 10-15.



602 INDIANA LA W REVIEW [Vol. 20:591

their face, at least, the blanket licensing arrangements were nonexclusive;

there was no explicit agreement among copyright owners to license
performance rights by this means alone, and there was no agreement
on what they would charge for licenses sold individually. Though CBS
attacked blanket licensing as "price-fixing," what it really wanted was

not individual bilateral licensing, but rather bulk licenses from BMI and
ASCAP in a different and cheaper form.68 That greatly increased the
awkwardness of its position; if blanket licensing was unlawful per se,

any form of licensing by the copyright owners acting in concert was

equally unlawful.69

The district judge, after a lengthy trial, dismissed the complaint on

all counts.70 A divided panel of the Second Circuit reversed, holding
the practice of blanket licensing unlawful per se. 71 The Supreme Court,

by a vote of eight to one, reversed the Second Circuit and remanded

the case for further consideration under the rule of reason. 72

Before Justice White, writing for the Court, could reach the merits

of the practice, he had to address the per se rule. "[Agreements among
competitors to fix prices," he wrote, "are among those concerted activities
that the Court has held to be within the per se category. But easy labels

do not always supply ready answers." 73 Determining whether a practice

is unlawful per se as "price-fixing"

is not a question simply of determining whether two or more

potential competitors have literally "fixed" a "price." . . . When
two partners set the price of their goods or services they are

literally "price-fixing," but they are not per se in violation of

68See CBS, 400 F. Supp. at 747 & n.7.
69
Cf. Broadcast Music, 441 U.S. at 17 n.27.

10CBS, 400 F. Supp. at 783. Judge Lasker distinguished the precedents cited by CBS
on the ground that in this case, the competing sellers, ASCAP and BMI, were offering
buyers a choice: buyers might either purchase the seller's products separately at competitively

determined prices or purchase them together at a package price. Id. at 748-49.
71 CBS, Inc. v. ASCAP, 562 F.2d 130 (2d Cir. 1977). "[T]he very availability of the

blanket license," Judge Gurfein wrote for the majority, "involves the fixing of a collective

price, which must, inevitably, permit the copyright owner to choose the blanket license

as his medium of licensing in preference to individual bargaining. The blanket license

dulls his incentive to compete." Id. at 139 (italics in original).
12Broadcast Music, 441 U.S. at 24-25. Justice Stevens dissented. In his view, on the

record before the Court, the defendant's refusal to license performance rights en bloc in

any form other than a blanket license was plainly unlawful under the rule of reason. Id.

at 26 n.4, 35 (Stevens, J., dissenting).

On remand, the Second Circuit affirmed the district court's exoneration of the
defendants under the rule of reason, on the ground that CBS had failed to show that
blanket licensing of music copyrights to television networks had any actual anticompetitive

effect. CBS, Inc. v. ASCAP, 620 F.2d 930, 939 (2d Cir. 1980).
^Broadcast Music, 441 U.S. at 8 (footnote omitted).



1987] PRICE-FIXING 603

the Sherman Act. . . . Thus, it is necessary to characterize the

challenged conduct as falling within or without that category of

behavior to which we apply the label "per se price fixing." 74

Though he framed the inquiry in terms of "redeeming competitive

virtues,"75 throughout much of the opinion, Justice White implied that
efficiency was the redemptive factor. "The blanket license," he noted,
"accompanies the integration of sales, monitoring, and enforcement

against unauthorized copyright use .... Individual sales transactions in

this industry are quite expensive, as would be individual monitoring and

enforcement, especially in light of the resources of single composers." 76

Though the economies were greater for some classes of licensees than
others, they were present to some degree in every transaction:

even for television network licenses, ASCAP reduces costs ab-
solutely by creating a blanket license that is sold only a few,

instead of thousands, of times .... [A] bulk license of some

type is a necessary consequence of the integration necessary to

achieve these efficiencies, and a necessary consequence of an

aggregate license is that its price must be established.77

Had the opinion ended on that note, Broadcast Music would stand
as an exception to the general prohibition against agreements among
competitors on price for arrangements that have the potential to create

efficiencies, regardless of their competitive effects. However, at the close,

the opinion took a turn. Following the pattern established by Sylvania

and Professional Engineers, the Court tied its observations about the

efficiencies of the practice before it to a conclusion regarding the impact

of the practice on competition. "[W]e have some doubt," Justice White

wrote, "about the extent to which this practice threatens the 'central

nervous system of the economy,' . . . that is, competitive pricing as the

free market's means of allocating resources."78 Blanket licensing was

efficient; it was also procompetitive.

This substantial lowering of costs . . . differentiates the blanket

license from individual use licenses. The blanket license is com-

posed of the individual compositions plus the aggregating service.

Here, the whole is truly greater than the sum of its parts; it
is, to some extent, a different product. . . . Many consumers

14
Id. at 9.

75
Id. at 13.

16
Id. at 20.

11
Id. at 21 (footnote omitted).

18
Id. at 23 (quoting United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 226

n.59 (1940)).



604 INDIANA LAW REVIEW [Vol. 20:591

clearly prefer the characteristics and cost advantages of this

marketable package .... ASCAP is not really a joint sales
agency offering the individual goods of many sellers, but is a
separate seller offering its blanket license, of which the individual

compositions are raw material. ASCAP, in short, made a market
in which individual composers are inherently unable to compete

fully effectively.
79

The composers and publishers had not agreed to license their works

exclusively through BMI and ASCAP; they had not agreed on what
they would charge for their products sold separately. Though CBS argued
that blanket licensing made individual licensing impracticable, the district
court had found that "there was no legal, practical, or conspiratorial

impediment to CBS's obtaining individual licenses; CBS, in short, had

a real choice." 80 CBS' argument thus came down to the contention that
the law forbids competitors to combine under any circumstances to

provide a product that cannot be provided without agreement among
them on the price at which it will be sold. No precedent compelled such
a holding, and the Court declined to so hold.

B. Catalano, Inc., v. Target Sales, Inc.

In the term after Broadcast Music, the Court, in Catalano, Inc. v.

Target Sales, Inc., 81 struck down per curiam an agreement among local
beer wholesalers to deny trade credit to retailers. Credit, the Court

observed, is part of the price of a product. In economic effect, the

agreement was similar to an agreement among competing sellers to
eliminate discounts. Because it was "merely one form of price-fixing,"

the agreement was "conclusively presumed illegal s without further ex-

amination . . . ." 82 Unlike the blanket licensing in Broadcast Music, the

restraint on price competition in Catalano involved no potentially pro-

competitive collaboration of any kind on matters other than price. From
the standpoint of competitive benefits, it was scarcely different from an

ordinary industry-wide price-fixing agreement. 83

In that respect, the next case, Arizona v. Maricopa County Medical

Society ™ was distinguishable from Catalano and much more like Broad-
cast Music. Nevertheless, the Court held the practice before it unlawful

per se.

79
Id. at 21-23 (footnotes omitted).

80
Id. at 23-24.

81 446 U.S. 643 (1980).
*2
Id. at 650.

"Id. at 648-49.
84457 U.S. 332 (1982).



1987] PRICE-FIXING 605

C. Arizona v. Maricopa County Medical Society

Maricopa, like Broadcast Music, involved an explicit agreement among
competitors on price. Physicians in Maricopa and Pima Counties in
Arizona who were members of "foundations for medical care" organized
under the auspices of their county medical associations periodically

adopted, by majority vote, maximum fee schedules to be used in con-
junction with insurance plans offered by certain insurers. Patients insured

under these plans were guaranteed "full dollar coverage" 85 for medical

expenses incurred within the range of services subject to the plans, with

a wide choice of doctors. The participating physicians agreed to bill the

insurance companies no more than the maximum scheduled fees for
services rendered to insured patients. Once adopted, the fee schedules

were circulated throughout the membership, which in Maricopa County

comprised seventy percent of the practicing doctors. 86

The state of Arizona brought suit under section 1 of the Sherman

Act against the two "foundations" and their county medical societies

to enjoin further concerted fixing of fees by the doctors. Under the

guise of protecting consumer interests, the state contended, the defendants

were raising the general level of medical fees in the state's two most

populous counties. 87 The district court denied the state's motion for

partial summary judgment, but certified for interlocutory appeal the
question "'whether the . . . agreements, which contain the promise to

abide by maximum fee schedules, are illegal per se . . . .'" 88 By a vote
of two to one, a panel of the Ninth Circuit affirmed. 89

On the record before the Court in Maricopa, the doctors' commitment
to maximum fees reduced the costs of calculating risks and computing

85 "Full dollar coverage" signifies 100% reimbursement for covered services, subject

to a deductible.

^Maricopa, 457 U.S. at 340. The Pima County percentage was disputed. Id. n.8.

However, the Court treated the Maricopa and Pima County arrangements as identical for
all practical purposes and held both unlawful without regard to market share. Id. at 340.

87The state argued:

Although the foundations' fee schedules supposedly set only maximum prices
and purportedly are limited to foundation endorsed health plans, they actually

have had an inflationary impact which belies their characterizations as "max-

imum" fee schedules and which reaches much further than formally endorsed
plans . . . [T]he foundations' fee schedules have been set at levels higher than

both the average and median fees of Arizona doctors as determined by the

foundations' own price surveys. . . . And, once the fee schedules are established
through the elaborate process of price surveys and formal voting, foundation

members revise their prices so that some 85 to 95 percent charge prices at or

above those established by the fee schedules.

Brief for Petitioner at 7.
88457 U.S. at 336-37 (quoting the Court of Appeals' statement of the issue).
89Arizona v. Maricopa County Medical Soc'y, 643 F.2d 553 (9th Cir. 1980).



606 INDIANA LAW REVIEW [Vol. 20:591

the payments due on insured claims. Though the insurers were capable
of negotiating maximum fee commitments with the physicians individ-
ually, arguably, greater economies were possible if the doctors fixed the

fees by agreement among themselves. Like the blanket licenses in Broad-
cast Music, the insurance plans constituted an attractive product—medical
insurance with guaranteed "full dollar coverage" and a choice among
doctors practicing privately in the community—different from anything
that could be offered by the participants acting independently. Moreover,

without agreements by the physicians to charge no more than a fixed
maximum, the program probably would not have worked. In the absence
of a fixed maximum, physicians would take advantage of guaranteed
100% reimbursement by unilaterally raising fees. Costs and premiums
would then increase to the point that the insurance plans would no

longer be attractive to subscribers. 90

Nevertheless, by a vote of four to three with two abstentions, 91 the

Supreme Court reversed both lower courts and held the agreement

unlawful per se. 92

Writing for the plurality—Justices Brennan, White, Stevens, and
Marshall—Justice Stevens began his analysis with the established per se
rule of per se illegality for horizontal price-fixing. Since Standard Oil

in 1911, he noted, the Court had consistently held that once ''price-

fixing" was proved, the section 1 inquiry was over: a "conclusive

presumption" brought the case within the statute. 93 Since at least 1952,

it had been clear that "horizontal agreements to fix maximum prices
[stood] on the same legal . . . footing as agreements to fix minimum
or uniform prices."94 Nothing in Maricopa—the fact that the competitors
were professionals, the fact that the judiciary lacked much experience
in evaluating "price-fixing" claims in the health care industry, or the

fact that the arrangement had some potential procompetitive effects

—

called for any special treatment. 95 The case was entirely different from

Broadcast Music. In Broadcast Music, price-fixing by competitors was

904
'[I]n the absence of the maximum price constraints individual fee hikes would pig

the program to death. The 100 per cent coverage program . . . would not be able to

survive in competition with other ways of providing health care." W. Liebeler, Antitrust
Advisor § 1.29, at 28 (2d ed. Supp. 1983). The Court apparently so assumed. See 457

U.S. at 352. There is no indication that the Court assumed or should have assumed from

the record before it that the maximum fee for each physician for each procedure had to
be the same.

91 Justices Blackmun and O'Connor took no part in the decision.
^Maricopa, 457 U.S. at 357.
9i
Id. at 344-45 (quoting Standard Oil Co. v. United States, 221 U.S. 1, 65 (1911)).

94
Id. at 348 (citing Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S.

211 (1951)) (footnote omitted).
9S
Id. at 348-51.



1987] PRICE-FIXING 607

"a 'necessary consequence' of the creation of [a] blanket license." 96 In

Maricopa, although some understanding between insurers and individual
participating physicians on maximum fees was essential to enable the
insurers to offer full dollar coverage,97 there was no necessity whatsoever

that the doctors combine to fix the fees. The insurers themselves were
fully capable "not only of fixing maximum reimbursable prices but also
of obtaining binding agreements with providers guaranteeing the insured

full reimbursement of a participating provider's fee." 98

Justice Powell, joined by the Chief Justice and Justice Rehnquist,

dissented in Maricopa. In Sylvania, he wrote, the Court had held that

as part of the inquiry required to determine whether a practice is unlawful

per se, "a court must determine whether the procompetitive economies

that the arrangement purportedly makes possible are substantial and

realizable in the absence of such an agreement."99 On the abbreviated
record before the Court in Maricopa, it was impossible to make that
determination. Given the posture of the case, the Court was required

to accept the defendants' contentions, supported by evidence in the

record, that their arrangement '"serves as an effective cost-containment

mechanism that has saved patients and insurers millions of dollars.'" 100

The insurance plans, Justice Powell thought, were like the blanket licenses

in Broadcast Music in every important respect: "Each involved com-

petitors and resulted in cooperative pricing. Each . . . was prompted by

the need for better service to the consumers. And each arrangement
makes possible a new product by reaping otherwise unattainable effi-

96
Id. at 355-56 (quoting Broadcast Music, 441 U.S. at 21).

97 "It is true," Justice Stevens wrote,

that a binding assurance of complete insurance coverage—as well as most of
the respondents' potential for lower insurance premiums [through cost savings

in risk calculation and the computation of benefits]—can be obtained only if
the insurer and the doctor agree in advance on the maximum fee that the doctor
will accept as full payment for a particular service. Even if a fee schedule is

therefore desirable, it is not necessary that the doctors do the price fixing.

Id. at 352 (emphasis added) (footnotes omitted).

"Id. at 353. Justice Stevens continued:

The most that can be said for having doctors fix the maximum prices is that
doctors may be able to do it more efficiently than insurers. The validity of that
assumption is far from obvious, but in any event there is no reason to believe

that any savings that might accrue [from having the doctors fix the prices]

would be sufficiently great to affect the competitiveness of these kinds of insurance

plans. It is entirely possible that the potential or actual power of the foundations

to dictate the terms of such insurance plans may more than offset the theoretical
efficiencies upon which the respondents' defense ultimately rests.

Id. at 353-54 (footnotes omitted).

"Id. at 362 (Powell, J. dissenting).
,00

Id. at 360 (quoting the plurality opinion at 342).



608 INDIANA LAW REVIEW [Vol. 20:591

ciencies . . . ."
101 Because the state had failed to prove that the defendants

had ''entered a plainly anticompetitive combination without a substantial

and procompetitive efficiency justification," the Court (in the dissenters'

view) should have affirmed the ruling of the trial court on the issue of
per se illegality. 102

Quite clearly, there were two distinctions between the agreements

on price in Broadcast Music and Maricopa that could reasonably be
regarded as important. First, unlike the composers and publishers in

Broadcast Music, the physicians in Maricopa fixed the prices of services

which they sold separately. The foundation arrangements therefore in-
volved all of the conventional competitive risks of horizontal agreements

fixing maximum prices. 103 Second, in Broadcast Music, the product
literally could not be sold without explicit agreement among the com-
petitors on price; in Maricopa, this was not true. As the plurality pointed
out, assuming the insurance plans could not be sold without commitments

by individual doctors to maximum fees, there was no reason why the
doctors had to do the fee-fixing. The insurers could do it. Although
this might be less economical, that was a far cry from saying that the
plans could not be provided otherwise. 104 The effect of a decree imple-

101
Id. at 364-65 (footnotes omitted).

i02
Id. at 366.

103As Justice Stevens observed: "The agreement under attack is an agreement among

hundreds of competing doctors concerning the price at which each will offer his own

services to a substantial number of consumers." Id. at 356-57. The maximum fee schedules
for the doctors' services were adopted by the doctors themselves. Once adopted, they were

circulated throughout the group of participating physicians. Thereafter, there was no

incentive for any individual physician to charge less than the "maximum" fee to any
patient insured under the plans. As the United States pointed out, appearing as amicus

curiae:

Doctors have no financial incentive to charge insured patients less than the

maximum fee because the insurers, in order to obtain foundation approval,
previously have agreed to pay any fee up to that maximum. Moreover, insured

patients have no direct incentive to select a doctor who charges less. The doctor's

charge is paid by the insurer, and an individual patient's premiums do not vary

on the basis of the fees charged by a particular doctor.

Brief for the United States as Amicus Curiae at 8. Moreover, by virtue of a provision

in the foundation scheme forbidding member physicians "to discriminate in billing Foun-

dation insured patients as compared to non-Foundation insured patients," see Brief for

Respondents at 44, the participating physicians were apparently required, if they charged

the agreed-upon "maximum" fees to patients insured under the special plans, to charge
no less to patients throughout the community. The Broadcast Music arrangements, as

Justice White had carefully noted, had no such feature. See supra text accompanying note

80.

1MMaricopa, 457 U.S. at 352-54. Had it been seriously argued that the effect of
transferring the fee-setting responsibility from the foundations to the insurers would have

been to raise the administrative costs of the program to the point that the plans would

have been priced out of the market, the economic impact of per se condemnation in

o



1987] PRICE-FIXING 609

meriting the Court's decision would be to shift the initiative in the

determination of maximum fees from the foundations, created by phy-
sicians whose interests lay in raising general fee levels, to the insurers,

whose interests lay (with consumers) in keeping fees down. The desired

product could then be provided on a competitive basis, without incurring

the risks inherent in an explicit agreement among competitors on max-
imum prices. 105

The fact remained that there was evidence that the "foundation"

method of establishing maximum fee schedules was economical, and that
the resulting economies were "procompetitive" in the sense in which

the dissenters obviously meant the term, i.e., the economies benefited

consumers. 106 "As we have noted," Justice Powell wrote, "the antitrust

Maricopa and Broadcast Music might have been the same. Nobody, however, raised that

argument.
10The Court's opinion has been criticized on this point for "formalism." "For

purposes of demonstrable economic effect," Professor Liebeler has written, "what dif-

ference does it make whether the doctors are 'canvassed' by a foundation of their own

creation which then deals with the various insurers or whether the doctors are 'canvassed'

by the various insurers directly?" W. Liebeler, supra note 90, at 32.
Implicit in the opinion, I believe, is this answer, supplied by the Department of

Justice:

[T]he agreements here at issue serve to inhibit unilateral actions by insurers

to restrain costs through prescription of their own maximum payments to phy-
sicians .... When competing physicians do not set prices, insurers have an
economic incentive to negotiate fee schedules that will minimize costs for medical

services rendered to their subscribers, for they maximize their own profits by
doing so. And when there is competition or potential competition among insurers
to minimize medical payments, the benefits of their actions accrue to the public.

Insurers who succeed in limiting their costs are able to offer lower premiums
than insurers who do not ....

When all insurers are faced with a single price schedule fixed by doctors
through foundations, however, competition has a much more limited potential
for minimizing consumer costs ....

Brief for the United States as Amicus Curiae at 8-9.

Prof. Liebeler's criticism, however, continues:

Even from a formalistic standpoint, Justice Stevens' suggestion does not avoid

the "problem" of a concert amongst the providers. There is plenty of authority

for the proposition that if the doctors entered into agreements with the insurers,

knowing that other doctors were doing the same thing, they have entered into

a horizontal concert of action.

W. Liebeler, supra note 90, at 32. This is a substantial point, which the Court did not
address. A response consistent with its opinion would be: The record before the Court
failed to show that direct horizontal price-fixing, in the form of explicit agreements among
physicians on fees, was essential to the provision of any product. If another case were

to come before the Court on a record demonstrating that the product in question could

be provided only by means of horizontal price-fixing in some less pernicious form, the
Court, following Broadcast Music, would withhold per se condemnation. See supra note

90.

'Throughout the dissenting opinion, Justice Powell distinguished implicitly between



610 INDIANA LAW REVIEW [Vol. 20:591

laws are a 'consumer welfare prescription.'" 107 The record did not compel

a finding that consumers 108 were* benefiting, through lower fees and

insurance premiums, from the economies specifically attributable to the

concerted fixing of fees; for all the record showed, as the plurality

pointed out, the practice resulted in higher fees, not lower ones. But

why should the case not be remanded for trial to find out? Given the
possibility of procompetitive efficiencies from the arrangement, it could

certainly be argued that it was wrong to "condemn this arrangement
forthwith under the Sherman Act, a law designed to benefit con-

sumers." 109

In Maricopa, the Court, by a narrow margin, rejected the proposition

that the prospect of procompetitive efficiencies from an agreement among
competitors to fix prices in and of itself justifies an exception to the

general prohibition. Affirming and applying the per se rule, the plurality

never fully explained why, after Sylvania and Broadcast Music, the

existence of some procompetitive efficiencies should not be recognized

as a complete defense to a charge of per se illegality. On the other
hand, the dissent, invoking the principles of Sylvania and Broadcast

Music, never squarely addressed the issue of whether economies arising

out of the mere process of fixing prices should be the basis for an

exception to the per se rule.

D. NCAA v. Board of Regents

Two years after Maricopa, the Court held that the rule of reason
applied to a set of controls on the licensing of college football television

rights that included the fixing of prices by competitors in combination. 110

Though the Court's opinion in NCAA shed new light on the nature of
the defendant's burden of justification in a rule-of-reason case involving

an agreement among competitors on price, it also raised further questions
concerning the criteria for exceptions to the general rule of per se

illegality.

efficiencies that are "procompetitive" and efficiencies that are not. See, e.g., supra text

accompanying notes 99-102. This point is overlooked when Broadcast Music and the dissent

in Maricopa are read together for the proposition that no practice should be condemned

per se if it has the potential to create significant efficiencies. See, e.g., W. Liebeler,
supra note 90, at 28-32; Gerhart, supra note 22, at 344-48.

10
"

Maricopa, 457 U.S. at 367 (Powell, J., dissenting) (quoting Reiter v. Sonotone

Corp., 442 U.S. 330, 343 (1979)).
108Lest he be misunderstood in his use of the word "consumer," Justice Powell

defined it in the context of the case: "The term 'consumer'—commonly used in antitrust
cases and literature—is used herein to mean persons who need or may need medical
services from physicians." Id. at 360 n.5. The misunderstanding he apparently wished to

avoid is discussed below. See infra text accompanying notes 139-45.
W9Maricopa, 457 U.S. at 360 (emphasis in original).
110NCAA v. Board of Regents, 468 U.S. 85 (1984).



1987] PRICE-FIXING 611

Since 1953, the National Collegiate Athletic Association had imposed

controls on the broadcasting of football games by its member colleges

and universities. 111 These controls, instituted originally to protect live

attendance at games, evolved over time into a device for increasing

television broadcast revenues and distributing them widely among the
member schools. In 1977, the NCAA granted the ABC television network
the exclusive right for four years to televise regular-season football games

between NCAA schools on a network basis, on terms which severely
limited the number of times any school could appear. In 1981, a new
four-year television plan granted shared exclusive rights on similar terms

to ABC and CBS. 112 When a group of NCAA member schools with
major football programs, dissatisfied with the plan, secured a competing

offer from NBC, the NCAA threatened retribution. Two of the dissidents,
the Universities of Oklahoma and Georgia, sued the NCAA, alleging
antitrust violations, including per se unlawful "price-fixing."

The NCAA controls fixed prices at two levels. The 1981 plan,
developed pursuant to an NCAA bylaw and ratified by the membership,
was essentially an agreement among competitors to bundle competing
products 113 and sell the bundle at a single price. The price—called the
"minimum aggregate fee" in the network contracts—was negotiated by
the member schools jointly, through the NCAA as their agent. Subject
to severe constraints, the contracts left the final choice of games to the

networks. By a custom so long-standing that it was regarded as part

of the agreement, however, once a network had selected a given game,

the compensation paid to the participating schools was determined ac-

11 'Except as otherwise noted, the facts are taken from the opinion of the district

court, Board of Regents v. NCAA, 546 F. Supp. 1276 (W.D. Okla. 1982).
At the time of suit, the NCAA was composed of approximately 900 members, most

of them four-year colleges and universities. Id. at 1282-83. These members will be referred

to here as "colleges" or "schools."
u2

Id. at 1283-84, 1289-93. By the terms of the 1981 plan, member schools were
limited to six appearances on regular network television, no more than four of which

could be nationally televised. With the NCAA's permission, member schools could contract
for "exception telecasts," but only on a local basis and only if certain conditions were

met. These restrictions were designed to guarantee increased television exposure for schools

with lesser-known football programs by curtailing exposure of other games viewers would

probably have chosen to watch, i.e., games between the prominent NCAA Division I
teams. To ensure that the networks did in fact broadcast games between lesser-known
teams, each network was required, over each two-year period, to schedule appearances

for at least 82 NCAA member schools.
The NCAA plan also provided for a contract granting the Turner Broadcasting System

the exclusive right to cablecast live performances of NCAA games. Id. at 1291-92.
" 3In the marketing of college football television rights, colleges are natural competitors:

the rights are valuable, the demand for them is finite, and in a free market, colleges
would vie with one another for the revenues available from their sale. See id. at 1298.



612 INDIANA LAW REVIEW [Vol. 20:591

cording to the NCAA's "recommended" schedule. The schedule set
uniform prices for national and regional telecasts for each of the NCAA's
three divisions.

At the close of a six-week trial, the district judge entered judgment
for the plaintiffs. The NCAA controls were found to be anticompetitive
both on their face and in effect. They yielded an array of televised
games entirely different from the one a free market, responsive to
consumer preferences, would have produced, and they grossly distorted

the prices paid for the rights to broadcast individual games. The district
court held the controls unlawful as "price-fixing" and as unreasonable

restraints under the rule of reason. 114 A divided panel of the Tenth
Circuit sustained both rulings. 115

In the Supreme Court, the NCAA argued that the controls were
highly procompetitive. College football, though in some ways unique in
its appeal to television viewers and thus attractive to advertisers and

broadcasters, had to compete with a variety of other televised enter-

tainments. To enable college football to compete effectively, it was crucial
that NCAA members provide a large and varied "menu" of "close and
exciting games" every season. 116 The appearance requirements and lim-
itations at the heart of the NCAA plan thus served a desirable and
procompetitive function:

It is undisputed that the extent of television exposure is very

important to colleges in recruiting new players and attracting

alumni donations. Thus the increase in the number of teams

shown on national or regional broadcasts puts the teams on

more competitive footing in recruiting new players and financing

their programs.

The result is that colleges will be more evenly matched on

the field, and more games will be close and exciting. The more

close and exciting games there are, the more people will watch

college football on TV, where it competes with other entertain-

ments . . . , 117

The NCAA hinted that if it were required to drop the controls, televised
college football as a sport attractive to viewers might cease to exist. It

u
*Id. at 1319. The district judge also held the television plan unlawful as mono-

polization and a group boycott. Id. at 1326.
,15Board of Regents v. NCAA, 707 F.2d 1147 (10th Cir. 1983). The court of appeals

affirmed on the monopolization count, reversed on the group boycott count, and remanded

for reconsideration of the decree. Id. at 1156, 1160, 1162.
"6Brief for the Petitioner at 22 nn.ll & 20.
ul

Id. at 20.



1987] PRICE-FIXING 613

argued that the decision on how best to package the product ought to
be left to members of the NCAA; as the producers of televised college
football, they were entitled to the same choice among marketing methods
as were the producers of a prime-time soap opera. 118

By unanimous vote, the Supreme Court declined to hold the NCAA
television controls unlawful per se. By a vote of seven to two, however,

the Court held the controls unreasonable under the rule of reason. 119

On its face, the NCAA television plan was plainly anticompetitive. 120
Unlike the ASCAP-BMI blanket licensing arrangements, the NCAA
controls not only fixed prices, but restricted output and severely restrained

competition in the market for the competitors' products sold separately. 121

Nevertheless, on the per se issue, the Court bypassed these distinctions.

Ordinarily, Justice Stevens wrote for the Court, horizontal price-fixing

"is presumed unreasonable without inquiry into the particular market

context in which it is found. Nevertheless, we have decided that it would

be inappropriate to apply a per se rule to this case." 122 The decision

"""Dynasty" was mentioned. Id. at 23. Defendant also argued that the controls were

procompetitive because they economized on production and transaction costs, discouraged

free rides, and increased live attendance at the games. Id. at 22-27.

"'Justice White, joined by Justice Rehnquist, dissented. NCAA, 468 U.S. at 120.
Arguing that "limiting the number of television appearances by any college is an essential

attribute of a balanced amateur athletic system," the dissenters thought the NCAA plan
was defensible both on conventional rule-of-reason grounds and as a means of promoting

the organization's non-commercial purposes. Id. at 128, 130-31 (White, J., dissenting).
l20

Id. at 113.

121 Justice Stevens in fact emphasized that point: "In Broadcast Music, [u]nlike this

case, . . . each individual remained free to sell his own music without restraint. Here
production has been limited, nof enhanced. No individual school is free to televise its
own games . . . ." Id. at 114-15 (footnote omitted).

The cases were also distinguishable on the ground that in NCAA, unlike Broadcast
Music, the competitors' agreement fixed the prices of the parties' respective products. See

supra text following note 110. The Court found this to be particularly objectionable.

NCAA, 468 U.S. at 105-08 & nn.30 & 33. This aspect of the agreement, however, served
primarily as a formula for distributing the minimum aggregate fee among the member
schools, much like the ASCAP-BMI procedures for the distribution of the proceeds of
blanket licensing.

The Court pointed out a third possible distinction:

The District Court did not find that the NCAA's television plan produced
any procompetitive efficiencies which enhanced the competitiveness of college

football television rights; to the contrary it concluded that NCAA football could
be marketed just as effectively without the television plan. ... In light of these

findings, it cannot be said that "the agreement on price is necessary to market

the product at all." Broadcast Music, 441 U.S. at 23.

Id. at 114 (footnote omitted). The Court's analysis holds, provided that "the product"

is college football television rights. If "the product" is viewed as exclusive package licenses

of college football television rights, the case suddenly looks a good deal more like Broadcast

Music. See id. at 129-30 (White, J., dissenting).
n2

Id. at 100.



614 INDIANA LAW REVIEW [Vol. 20:591

was based, he emphasized, not on a lack of judicial experience with the

practice, but on the fact that "this case involves an industry in which

horizontal restraints on competition are essential if the product is to be

available at all." 123 Many NCAA rules were designed to preserve am-
ateurism in college football—rules restricting payments to athletes, rules
requiring them to attend classes, etc. Those rules were procompetitive:

they made the sport more attractive to game-goers and television viewers,
and differentiated it from sports like minor league baseball. Because,

indeed, "the great majority of the NCAA's regulations enhance com-
petition . . ., a fair evaluation of [the television controls'] competitive

character requires consideration of the NCAA's justifications ... ." 124

Under the rule of reason, a practice like the one before the Court

—

a "naked restriction on price or output"—was unlawful, absent a pro-
competitive justification, regardless of whether the parties to it had

collective market power. 125 The NCAA controls constituted "horizontal
price fixing, perhaps the paradigm of an unreasonable restraint of trade." 126

Under the controls in operation, on the undisputed findings of the

district court,

[p]rice is higher and output lower than they would otherwise

be, and both are unresponsive to consumer preference. . . . This

latter point is perhaps the most significant, since "Congress

designed the Sherman Act as a 'consumer welfare prescription.'"

... A restraint that has the effect of reducing the importance
of consumer preference in setting price and output is not con-

sistent with this fundamental goal ... , 127

Because the restraints had that effect, the NCAA bore "a heavy burden
of establishing an affirmative defense. . . ." 128

The Court held that the NCAA failed to sustain its burden. To the
extent that balancing the strength of NCAA football teams enhanced

i2i
id. at 101.

124
Id. at 103.

12
^Id. at 109-10. The cases cited by the Court in support of this proposition shed

some light on what the Court meant by "naked restrictions." They included not only

cases involving agreements among competitors fixing the prices of their products sold

separately, but cases like Catalano, Professional Engineers, and Socony, which involved

other practices that necessarily interfered with price competition if they had any effect at

all. Id. at 110 & nn.40-41.
Because the NCAA had market power, see id. at 111-12, the proposition in the text

was dictum. Carefully stated and supported by extensive case citations, it was dictum of

a fairly high order.
[26

Id. at 100.

127
Id. at 107 (footnotes omitted).

l28
Id. at 113.



1987] PRICE-FIXING 615

public interest in the games, it was procompetitive, and the NCAA's
interest was "legitimate and important." 129 As a means to that end,
however, the television controls were ineffectual 130 and overbroad. 131 There

was no evidence that they produced any greater measure of team balance

than would a variety of other regulations the NCAA apparently had
the power to impose, 132 none of which would involve direct horizontal

restraints on price and output
—

"the paradigmatic examples of restraints

of trade that the Sherman Act was intended to prohibit." 133

Thus in NCAA, unlike Broadcast Music, the fact that the arrange-
ment was held to qualify for rule-of-reason rather than per se treatment

did not affect the outcome. The question remains: since the NCAA
controls were distinguishable on their face from the agreements in Broad-

cast Music, why did the Court withhold per se condemnation? Although
some restraints on competition might be essential to the existence of

college football and the marketing of college football television rights,

how could that justify the fixing of prices, which so clearly was not?
Unless the mere fact that such conduct might have procompetitive effects

in a particular context exempts it from per se condemnation—which the
Court in Maricopa held was not the case—how could the fact that other
restraints imposed by the same parties were procompetitive have any

bearing at all?

Perhaps, on the per se issue, there was another more persuasive

approach to the same result. As the Court noted in Broadcast Music,
package sales are potentially procompetitive. That is true even where,

as in NCAA, the sales are exclusive package sales and the contents of
the package are products that could otherwise be sold in competition

with one another. 134 On its face, the exclusive package licensing in this
case had procompetitive potential. Clearly there could be no package

n9
Id. at 117.

130Justice Stevens had no difficulty in providing an example: "It seems unlikely . . .

that there would have been a greater disparity between the football prowess of Ohio State

University and that of Northwestern University in recent years without the NCAA's
television plan." Id. at 118 n.62. That though was merely one illustration of the more

general problem: "The District Court found that in fact the NCAA has been strikingly
unsuccessful if it has indeed attempted to prevent the emergence of a 'power elite' in

intercollegiate football." Id.; see Board of Regents v. NCAA, 546 F. Supp. at 1310-11.
13lNCAA, 468 U.S. at 119.
in

Id.

l2i
Id. at 107-08. The Court also noted that the controls were "not related to any

neutral standard"—a comment, apparently, on the fact that the NCAA had suggested no
criterion by which a court could determine whether its members had abused their collective

power over price and output, but was instead essentially requesting complete discretion

—

and that if the controls were lifted, on the findings of the district court, consumption

of the product (televised college football) would increase. Id. at 118, 119-20.
XMSee, e.g., C. Kaysen & D. Turner, Antitrust Policy—An Economic and Legal



616 INDIANA LAW REVIEW [Vol. 20:591

sale of the competing products, exclusive or otherwise, without an agree-

ment among the competitors on the price. Though there were plainly
other techniques available by which the NCAA member schools could
apportion television revenues and balance teams, the relationships in-

volved were quite complex—far more complex than those in Maricopa,
where it was clear on the pretrial record that an alternative arrangement

which did not involve an explicit horizontal agreement on price would

yield comparable benefits at far less risk. On the record before it, the
Court could reasonably conclude that the circumstances warranted a full

inquiry into the reasonableness of the restraint—and that the district
judge, having conducted such an inquiry, had reached the right result.

III. Policy and Doctrine

To get a good sense of what is happening to the law of "price-
fixing," these cases must be read at two levels. At the policy level, the

opinions start from the premise that the law's primary objective is to

protect consumers' economic interests in competition in the marketplace.

This is a conservative premise, which has strong support in both the

legislative history of the Sherman Act and the leading cases applying

section 1 to horizontal agreements on price. What is new in the recent
cases is the Court's receptivity to the argument that competitive benefits

to consumers from horizontal agreements on prices are in some instances
substantial and worth preserving. In Broadcast Music and NCAA, but
not in Maricopa, that argument prevailed. The result is a change in

doctrine—the express recognition of exceptions to the general rule of
per se illegality.

A. Policy

At the heart of these opinions are two premises: (1) the first concern
of the Sherman Act is to protect the economic interests of consumers

in competition among producers and distributors; (2) the curtailment of
competition by agreement among producers or distributors runs contrary
to the law's objectives unless it in some way enhances or promotes
competition, thereby increasing the economic well-being of consumers.

The Sherman Act, Justice Stevens wrote for the Court in Professional

Engineers,

reflects a legislative judgment that ultimately competition will

produce not only lower prices, but also better goods and

services. . . . The assumption that competition is the best method

Analysis 152-53 (1959); L. Sullivan, Handbook of the Law of Antitrust §§ 77, 104
(1977).



1987] PRICE-FIXING 617

of allocating resources in a free market recognizes that all ele-

ments of a bargain—quality, service, safety, and durability

—

. . . are favorably affected by the free opportunity to select

among alternative offers. 135

Competition is the free market's means of applying constant pressure

to producers and distributors to satisfy consumers' desires. Competition

in the medical profession creates incentives for doctors to employ in-

novative and challenging procedures and to experiment with new tech-

niques.
136 Competition in the market for college football television rights

ensures that televised games are the ones viewers really want to see. 137

Price competition is more than just a device for making products more

affordable; it is an important mechanism for communicating consumer

preferences to producers and distributors who, in turn, are rewarded

for satisfying them; it is ''the central nervous system of the economy." 138

The thrust of the cases is neatly summarized in a phrase which

recurs in the opinions: the Sherman Act was intended by Congress to

be a "consumer welfare prescription." The phrase comes from the

writings of Prof, (now Judge) Robert Bork, a leading exponent of the

Chicago school of antitrust analysis. 139 Adherents of the Chicago school

—

proponents of the view that the objective of the antitrust laws is to

promote economic efficiency—have commended the Court for adopting
the phrase. 140 As the Court uses it, however, in the context of a horizontal
restraint on price competition, the phrase does not refer, as it generally

does in the literature of the Chicago school, 141 to the welfare of everyone

potentially affected by the restraint, including the owners of participating

firms and purchasers of goods and services in remote markets. The

Court uses the phrase to refer specifically to the welfare of consumers

of the product subject to the restraint: i.e., purchasers of consumer

135435 U.S. 679, 695 (1978).
,36Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332, 348 (1982).

""NCAA, 468 U.S. at 105-06, 107 n.34.
138United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 n.59 (1940), quoted

in Professional Engineers, 435 U.S. at 692, and Broadcast Music, 441 U.S. at 23.
139"The legislative histories of the antitrust statutes, therefore, do not support any

claim that Congress intended the courts to sacrifice consumer welfare to any other goal.

The Sherman Act was clearly presented and debated as a consumer welfare prescription."

R. Bork, supra note 22, at 66.
i40
See, e.g., R. Posner & F. Easterbrook, Antitrust Cases, Economic Notes and

Other Materials 154 (2d ed. 1981); Baxter, Responding to the Reaction: The Draftsman's
View, 71 Calif. L. Rev. 618, 619 n.6 (1983).

]4l See, e.g., sources cited supra notes 139-40; Gerhart, supra note 22, at 330-32;

Liebeler, supra note 22, at 13-16; Muris, The Efficiency Defense Under Section 7 of the

Clayton Act, 30 Case W. Res. L. Rev. 381, 384-86 (1980); Williamson, Economies as
an Antitrust Defense: The Welfare Tradeoffs, 58 Am. Econ. Rev. 18 (1968).



618 INDIANA LAW REVIEW [Vol. 20:591

goods who have paid inflated prices as a result of a conspiracy among
manufacturers to fix prices; 142 television viewers who are prevented from
watching those football games they would most like to see by an agree-

ment among colleges that restrains competition in the sale of broadcasting
rights;

143 and purchasers of health insurance whose premiums might or

might not be reduced if the maximum fees for physicians' services were
set by the method claimed to be the most economical, viz., explicit

agreement among the physicians themselves. 144 As a "consumer welfare
prescription"

—"a law designed to benefit consumers" 145—the Act's first
concern in a case involving price-fixing by competitors is the welfare

of consumers who stood to benefit from competition among the fixers
and who may now be injured by its curtailment.

The second recurring theme in the cases concerns the kinds of effects

that will justify a competitive restraint. The traditional formulation of

the rule of reason in Chicago Board of Trade is vague and open-ended.
146

The cases discussed here narrow the range of inquiry to the impact of

the challenged practice on "competitive conditions." 147 A practice un-
reasonably restrains trade if it suppresses competition and does not

promote it. 148 The virtues that can redeem a competitive restraint are

"redeeming competitive virtues;" 149 the efficiencies that count are "pro-

competitive efficiencies." 150 A restraint that "enhance[s] the competi-
tiveness" of a product may be defensible. 151 A restraint whose defense
rests on the proposition that in a particular commercial context "com-

petition itself is unreasonable," however, is doomed. 152

Under these formulations, the critical question becomes: What effects
of a competitive restraint are "procompetitive" effects? The opinions

leave the answer to inference. From the Court's initial premise, it would
seem to follow that if an agreement restrains competition, its defense

under the Act must be on the ground that in some way it also stimulates

142Reiter v. Sonotone Corp., 442 U.S. 330, 343-44 (1979).
l43NCAA, 468 U.S. at 107 n.34. See supra text accompanying note 127.
l44Maricopa, 457 U.S. at 367 (Powell, J., dissenting). See supra notes 106-09 and

accompanying text.
145Maricopa, 457 U.S. at 360 (Powell, J., dissenting) (italics deleted).
[46See Board of Trade v. United States, 246 U.S. 231, 238 (1918), quoted in part,

supra note 42, criticized, R. Bork, supra note 22, at 41-47.

^Professional Engineers, 435 U.S. at 690 & n.15 (quoting Standard Oil Co. v. United
States, 221 U.S. 1, 58 (1911)); see Continental T.V., Inc. v. GTE Sylvania, Inc., 433
U.S. 36, 51-56 (1977) (discussed supra, text accompanying notes 34-48).

148
Professional Engineers, 435 U.S. at 691 (citing Sylvania, 433 U.S. at 49 n.15.).

,4S'Broadcast Music, 441 U.S. at 13.
l50NCAA, 468 U.S. at 114; Maricopa, 457 U.S. at 362, 363, 366 (Powell, J., dissenting)

(discussed supra notes 106-09 and accompanying text).
l5iNCAA, 468 U.S. at 114.
l52

Id. at 117 (quoting Professional Engineers, 435 U.S. at 696).



1987] PRICE-FIXING 619

competition, thereby increasing the benefits to consumers from the com-

petitive process.

On the whole, the cases support that proposition. Restraints that in
some way also facilitate competition and enhance the overall benefits
to consumers are "procompetitive;" restraints that do not, are not. In

Professional Engineers, the defendants' ban on competitive bidding proved

to be designed not to help the suppliers of engineering services satisfy

consumers' desires, but to make it more difficult for price-conscious
buyers to get what they wanted without increasing in any way the
alternatives available to buyers willing to pay for high quality. It failed

the test. 153 In Broadcast Music, the Court praised blanket licensing for

its efficiency in general; the opinion also emphasized that the practice

enabled individual and bulk licenses to be sold in competition with one

another, giving buyers "a real choice." 154 In Maricopa, the plurality and

the dissenters apparently agreed that the fixing of medical fees by explicit

agreement among physicians in connection with the provision of a new
form of health insurance would be procompetitive if it were essential

to make the insurance marketable on competitive terms, or if it introduced
efficiencies that resulted in lower premiums to consumers; they disagreed

on whether the potential procompetitive effects of the specific practice
involved were sufficient to justify an exception to the general rule. 155

In NCAA, the Court indicated that it would regard the defendant's
restraints on the sale of college football television rights by member
schools as procompetitive to the extent that they increased consumption

of the product by making it more attractive to consumers; the Court
held, however, that the defendant had failed to satisfy the burden of

justification on that ground. 156

In its emphasis in these cases on the economic interests of consumers

in competition, the Court has been paying tribute to a very old tradition.

To the proponents of vigorous antitrust legislation in the Congress that
passed the Sherman Act, injury to consumers resulting from the suppres-
sion of competition by powerful combinations of competitors was a

central concern. 157 The most frequent and ardent complaint against the
trusts was that they used their power to restrict output and raise prices

to consumers. Senator Sherman himself never wavered from his position

153See supra text accompanying notes 49-58.
154See supra text accompanying notes 75-80.
155See supra text accompanying notes 93-109.
l56See supra text accompanying notes 129-33.
15The evidence is marshalled in Lande, Wealth Transfers as the Original and Primary

Concern of Antitrust: The Efficiency Interpretation Challenged, 34 Hastings L.J. 65, 82-

96 (1982). See also Bork, Legislative Intent and the Policy of the Sherman Act, 9 J.
Law & Econ. 7, 14-20 (1966).



620 INDIANA LAW REVIEW [Vol. 20:591

that all combinations "designed, or which tend, to advance the cost of

the consumer" of articles of commerce should be unlawful. 158 Other
spokesmen in both houses were harsh and unsparing in their condem-
nation of combinations of potential competitors who, by eliminating

competition among themselves, raised prices and rates and "ble[d] and
fleece[d] the people." 159 In the course of debate, Senator Sherman and
others emphasized that they were not opposed in principle to combinations

of capital and labor in the form of corporations, partnerships, and the

like, because such combinations tended to "lessen the cost of production,

and bring within the reach of millions comforts and luxuries formerly

enjoyed by thousands." 160 It was combinations that stifled competition

and raised prices to consumers that were objectionable—and they re-
mained objectionable even if they lowered production costs. 161 Senator

Sherman observed of the trusts:

It is sometimes said of these combinations . . . that they reduce

prices to consumers by better methods of production, but all

experience shows that this saving of cost goes to the pockets of

the producer. The price to the consumer depends upon the supply,
which can be reduced at pleasure by the combination. 162

15SSee Bork, supra note 157, at 15-16 (quoting S. 1, 51st Cong., 1st Sess. § 1, 21

Cong. Rec. 1765 (1890)). Though the bill that ultimately passed Congress as the Sherman

Act was drafted by others, Sherman was a central figure in the debate. Sherman's views,

Judge Bork has stated in his classic study of the legislative history, "are crucial to an

understanding of the intent underlying the law that bears his name." Bork, supra, at 14.
159The quotation is from the speech of Rep. Anderson of Kansas, 21 Cong. Rec.

5959 (1890).

[D]uring the debates Senator Sherman termed monopolistic overcharges . . .

"extorted wealth" .... Congressman Wilson complained that the beef trust

"robs the farmer on the one hand and the consumer on the other." Representative

Fithian declared that the trusts were "impoverishing" the people through "rob-

bery." Senator Hoar declared that monopolistic pricing was "a transaction the

direct purpose of which is to extort from the community . . . wealth which

ought to be generally diffused over the whole community."

Lande, supra note 157, at 94-95 (footnotes omitted).
,6021 Cong. Rec. 2457 (1890) (remarks of Sen. Sherman).
161 Judge Bork concluded that Congress intended to condemn all mergers resulting in

monopoly. Bork, supra note 157, at 11, 25. Lande in his more recent study similarly

concluded:

[T]he evidence suggests that Congress was unwilling to subordinate its . . . distaste

for trusts and monopolists to the goal of corporate efficiency when the efficiency

gains would be retained by the monopolist.

. . . [Congressional endorsement of trusts' efficient operations stopped when

consumer prices rose, and the legislature withheld approval from combinations

that, while yielding more efficient methods of competition, also produced higher

consumer prices.

Lande, supra note 157, at 83, 90-91.
16221 Cong. Rec. 2460 (1890). Senator Sherman, Judge Bork has noted, "stressed



1987] PRICE-FIXING 621

These arguments substantially shaped the law of "contract, com-

bination [and] conspiracy ... in restraint of trade" 163 as applied to

horizontal price-fixing. In the seminal price-fixing decisions of the 1890's,

the Court, noting that price-fixing by powerful firms in combination

tended to raise prices to consumers by eliminating competition in much
the same fashion as the trusts, concluded that Congress had intended

the same principles to apply to both and held the price-fixing agreements

unlawful without regard to the reasonableness of the prices. 164 In the

1911 Standard Oil case, the Court, summarizing the concerns that had

prompted the passage of the Sherman Act, emphasized "the dread of

enhancement of prices and of other wrongs which it was thought would

flow from [any] undue limitation on competitive conditions . . . ," 165

i.e., the classic evils of monopoly from the consumer's standpoint: "I.
The power which the monopoly gave to the one who enjoyed it to fix
the price and thereby injure the public; 2. The power which it engendered

of enabling a limitation on production; and, 3. The danger of deteri-

oration in quality of the monopolized article. . . ." 166 In Standard Oil,

the Court expressly approved its holdings in the early price-fixing cases:

"[Considering the contracts or agreements, their necessary effect and

the character of the parties by whom they were made, they were clearly
restraints of trade within the purview of the statute. . . ." 167

The proposition that the law's first concern in price-fixing cases is

to protect the interests of consumers in competition is far from new.

The novelty in the recent cases lies in the fact that the Court has
reopened the question of what rule will best protect those interests.

the legality of efficiency repeatedly .... The only limit he urged to the creation of

efficiency by combination was justified explicitly in terms of consumers welfare. He thought
combinations of monopolistic size would not pass their efficiencies on to consumers."

Bork, supra note 157, at 26-27.
163Sherman Act § 1, 15 U.S.C. § 1 (1982).
]MSee United States v. Trans-Missouri Freight Ass'n., 166 U.S. 290, 322-26 (1897);

see also Addyston Pipe & Steel Co. v. United States, 175 U.S. 211 (1899); United States
v. Joint-Traffic Ass'n, 171 U.S. 505 (1898).

'"Standard Oil Co. v. United States, 221 U.S. 1, 58 (1911). Compare the following

passage from Apex Hosiery Co. v. Leader, 310 U.S. 469 (1940), a decision contemporaneous

with Socony:

[The Sherman Act] was enacted in the era of "trusts" and of "combinations"

of businesses and of capital organized and directed to control of the market

by suppression of competition in the marketing of goods and services .... The

end sought was the prevention of restraints to free competition in business and

commercial transactions which tended to restrict production, raise prices or

otherwise control the market to the detriment of purchasers or consumers of

goods and services, all of which had come to be regarded as a special form of

public injury.

Id. at 492-93 (footnote omitted).

'"Standard Oil, 221 U.S. at 52.
167

Id. at 65.



622 INDIANA LAW REVIEW [Vol. 20:591

B. The Per Se Rule

An absolute prohibition against agreements among competitors on
price would condemn some agreements, such as the blanket licensing
agreements in Broadcast Music, that have the potential to promote

competition. The fact that a rule forbids conduct that may do some
good and that may sometimes even do more good than harm is not a
conclusive argument against it. 168 When the rule is judicially formulated,
that fact tends to invite some tinkering. For a generation after the
Socony decision in 1940, the Court refused to condone any tinkering

with this particular rule. With the decision in Broadcast Music, that era
ended.

What the cases clearly contemplate is reform, not repeal. "Horizontal
price-fixing and output limitation," the Court observed in NCAA, "are
ordinarily [unlawful] under an 'illegal per se' approach because the

probability that these practices are anticompetitive is so high." 169 In a

footnote the Court continued: "[w]hile judicial inexperience with a par-

ticular arrangement counsels against extending the reach of per se rules,

... the likelihood that horizontal price and output restrictions are

anticompetitive is generally sufficient to justify application of the per

se rule without [further] inquiry. . . ." 170

The problem, then, is to define those classes of price-fixing agree-

ments that qualify for exceptional treatment. In the case of conventional

or "straight" price-fixing agreements—agreements on price unaccom-
panied by any agreement to collaborate in other potentially procompetitive

activity—there is a powerful argument for an absolute prohibition, re-
gardless of purpose or effect. Nothing in the Court's decisions suggests

any softening of attitude toward price-fixing of this kind. It is where

the agreement on price functions as part of a larger potentially pro-

competitive undertaking that serious questions about per se illegality

arise.

1. Conventional Price-Fixing.—"[I]n characterizing . . . conduct un-
der the per se rule," the Court noted in Broadcast Music, "our inquiry

must focus on . . . whether the practice . . . appears to be one that

168 "The per se rule condemns whole categories of practices even though some practices

in these categories are beneficial. The Court permits such overbreadth because all rules

are imprecise. One cannot have the savings of decision by rule without accepting the costs
of mistakes." Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1, 14-15 (1984)

(footnotes omitted).
169468 U.S. at 100.
il0

Id. at n.21. Compare Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752

(1984), in which the Court affirmed two lower-court decisions holding the defendant liable

for violation of the per se rule against resale price maintenance, expressly declining the

invitation of the Solicitor General and others (see id. at 1469 n.7) to reject the rule as

unsound.



1987] PRICE-FIXING 623

would always or almost always tend to restrict competition and decrease

output . . . ." m Per se condemnation of a practice that may promote
competition is appropriate, the Court has recently observed, "where the

likelihood of anticompetitive conduct is so great as to render unjustified

the costs of determining whether the particular case at bar" involves a

reasonable restraint. 172

On these tests, conventional price-fixing fares badly. 173 Perhaps if
the rule of reason were the controlling rule, some firms with little or

no collective market power would fix prices solely to reduce uncertainty

and lower costs. 174 To distinguish these agreements from agreements of
the pernicious kind, the courts would have to define markets and attempt

to measure collective market power in every conventional price-fixing

case.
175

It seems highly unlikely that the economies from such agreements

would be worth pursuing at that price. 176 In cases involving firms with

,71 441 U.S. at 19-20 (footnote omitted).
l72Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 15-16 n.25 (1984).
173For more thorough statements of the arguments summarized here, see R. Bork,

supra note 22, at 263-69; F. Scherer, Industrial Structure and Economic Performance
438-40 (1970); L. Sullivan, supra note 134, § 67; Rahl, Price Competition and the Price

Fixing Rule—Preface and Perspective, 57 Nw. U.L. Rev. 389, 396-400 (1980); Comment,
supra note 7, at 864-68.

ll4See P. Areeda, Antitrust Analysis—Problems, Text, Cases f 307 (3d ed. 1981);
Dewey, Information, Entry and Welfare: The Case for Collusion, 69 Am. Econ. Rev.
587 (1979); Easterbrook, supra note 22, at 901 n.45.

175As Professor Sullivan has noted:

[B]y putting aside [in Socony] the question whether defendants possessed or had

acquired through the concerted agreements sufficient market power to impose

prices higher than competition would yield, the Court vastly simplified cartel

litigation. If power had to be proved, virtually all of the structural and behavioral

evidence which is canvassed in a monopoly case could be brought to bear ....

A court would in the end be forced to delve nearly as fully into the power
issue as in a monopoly case.

L. Sullivan, supra note 134, § 67, at 186.
ll6See Easterbrook, supra note 22, at 901; see also W. Liebeler, supra note 90, at

29-31.

It has been argued that agreements fixing maximum prices are distinguishable in this
regard from other forms of price fixing, and should be judged under the rule of reason.

See, e.g., Easterbrook, supra note 22. In Maricopa, the Court declined to recognize any

distinction:

Our decisions . . . place horizontal agreements to fix maximum prices on
the same legal—even if not economic—footing as agreements to fix minimum
or uniform prices. The per se rule "is grounded on faith in price competition
as a market force [and not] on a policy of low selling prices at the price of

eliminating competition." . . . Such a restraint . . . may discourage entry into
the market and may deter experimentation and new developments by individual
entrepreneurs. It may be a masquerade for an agreement to fix uniform prices,
or it may in the future take on that character.

457 U.S. at 348 (footnote omitted). See generally L. Sullivan, supra note 134, § 78.



624 INDIANA LA W REVIEW [Vol. 20:591

substantial power, harm to consumers in the form of higher prices and
reduced output would be virtually guaranteed. Benefits typically would

be conjectural and difficult to quantify. 177 Defendants in such circum-

stances would find it hard to satisfy a conscientious court that the

economic interests of consumers in competition would not be better

served by some lesser restraint or by no restraint at all. In many instances,
the suspicion that the firms had entered into the agreement primarily

"to make all the money possible" 178 at the consumers' expense, with
procompetitive purposes secondary at best, would be impossible to dispel.

Where the parties did succeed in dispelling that suspicion, and estab-
lished that their fixed prices were reasonable in light of the justification

advanced for the price-fixing, there would be a further consideration.

As the Court noted long ago, "[t]he power to fix prices, whether
reasonably exercised or not, involves [the] power ... to fix arbitrary

and unreasonable prices. The reasonable price fixed today may through
economic and business changes become the unreasonable price of to-

morrow." 179 To sustain the agreement, the court would have to find
that the potential benefits from the restraint were large enough to justify

assuming a burden of continuing supervision.

The prospect of a regime of price-fixing agreements throughout the

economy, administered by courts with the aid of enforcement authorities

on a cumbersome variation of the public-utility model, is not attractive.

It is small wonder then that ever since the rate-bureau cases of the

1890's, the Court has consistently held in straight price-fixing cases that

this is not what the Congress that passed the Sherman Act had in

mind. 180

Reinforcing these arguments for an unequivocal prohibition against

straight price-fixing is the deterrent value of a clear, simple rule backed

by the credible threat of severe sanctions. Although this aspect is often

overlooked in the cases, its importance becomes obvious once the manner

of the rule's use is analyzed.

177A classic illustration is the defendants' argument in the rate-bureau cases that their
agreement was necessary to prevent "ruinous" or "destructive" competition, which if left

unchecked would extinguish otherwise viable railroads one by one, to the detriment of

all but the survivor(s). See United States v. Joint-Traffic Ass'n, 171 U.S. 505, 576 (1898);

United States v. Trans-Missouri Freight Ass'n, 166 U.S. 290, 329-30, 338 (1897).
ll8See United States v. American Column & Lumber Co., 257 U.S. 377, 399 (1921).
179United States v. Trenton Potteries Co., 273 U.S. 392, 397 (1927).
lS0See cases cited supra notes 2 & 7. Chicago Board of Trade and Appalachian Coals,

see supra note 13, are not to the contrary; neither dealt with conventional price-fixing.

Chicago Board of Trade involved a commodity exchange rule regulating the price of grain

in isolated sales occurring after trading hours; there was no agreement among competing

sellers on the price of what they sold. 246 U.S. at 237. In Appalachian Coals, the

competing coal producers' agreement on the price of sale accompanied an agreement to

collaborate on matters other than price—i.e., the formation of a joint selling agency. 288
U.S. at 357-58.



1987] PRICE-FIXING 625

As a deterrent to unreasonably anticompetitive activity, the rule of

reason has serious inadequacies. The risk of criminal sanctions for its

violation is virtually nil. Though the constitutionality of criminal pro-

ceedings under the rule has been upheld, the leading case 181 on the issue

is old, and doubts have been expressed that the issue would be resolved

the same way today. 182 As a practical matter, the question is all but

moot, since the government, in the exercise of its discretion, rarely

prosecutes rule-of-reason violations as crimes. On the civil side, the risk
of treble damages is attenuated by several factors. Rule-of-reason liti-

gation tends to be complex and expensive. Despite the fact that the rule

has been in existence since 1911, in most contexts what the plaintiff

must prove in order to prevail is still far from clear. Courts frequently

hold that market definition—a miserable process which is often both
costly and inconclusive—is an essential aspect of proof. 183 The prevailing
impression at the bar is that plaintiffs lose most rule-of-reason cases 184—
if not at trial, then on appeal, in part because the long and involved

proceedings at trial provide so much opportunity for error. These factors
combine to discourage private litigation under the rule of reason and

to encourage settlement on modest terms of suits that are actually

brought.

From the standpoint of deterrence, the general rule of per se illegality
for agreements among competitors to fix prices is everything that the
rule of reason is not. The threat of criminal sanctions for its violation

,81 Nash v. United States, 229 U.S. 373 (1913) (Sherman Antitrust Act not unconsti-

tutional on grounds of vagueness as to prohibited activities).
iS2See, e.g., Mercurio, Antitrust Crimes: Time for Legislative Definition, 51 Notre

Dame L. Rev. 437, 443 (1976). Others have suggested that Nash was not a strong test
of the constitutionality of the rule of reason as a rule of criminal liability because the

case involved horizontal price-fixing, which by then was a well-established § 1 violation.

See Baker, To Indict or Not to Indict: Prosecutorial Discretion in Sherman Act Enforcement,
63 Cornell L. Rev. 405, 409 n.23 (1978); Note, Is the Sherman Act Unconstitutionally

Vague as a Criminal Statute? A Re-evaluation after Gypsum, 13 Suffolk U.L. Rev. 1284,
1289 (1979).

mSee, e.g., Hood v. Tenneco Texas Life Ins. Co., 739 F.2d 1012, 1018 (5th Cir.
1984); L.A. Draper & Son v. Wheelabrator-Frye, Inc., 735 F.2d 414, 422-23 (11th Cir.
1984); Fine v. Berry & Enright Prods., 731 F.2d 1394, 1399 (9th Cir. 1984), cert, denied,
468 U.S. 881 (1985); Hayden Publishing Co. v. Cox Broadcasting Corp., 730 F.2d 64,
69-70 (2d Cir. 1984); Computer Place, Inc. v. Hewlett-Packard Co., 607 F. Supp. 822,

831 (N.D. Cal. 1984). In Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752,
768 (1984), the Supreme Court implied that an inquiry into market power is essential in

every rule-of-reason case. More recently, however, in FTC v. Indiana Fed'n of Dentists,
106 S. Ct. 2009, 2018-19 (1986), the Court appeared to hold that detailed market definition

in rule-of-reason cases is not invariably required.
184A prominent antitrust attorney has characterized the rule of reason as "a euphemism

for an endless economic inquiry resulting in a defense verdict." Blecher, Schwinn

—

An
Example of a Genuine Commitment to Antitrust Law, 44 Antitrust L.J. 550, 553 (1975).



626 INDIANA LAW REVIEW [Vol. 20:591

is real, and the potential criminal sanctions are severe. 185 The rule can
scarcely be said to be unconstitutionally vague. 186 Its simplicity shortens

trial in cases actually brought, thus enabling the government to prosecute

more cases. It also increases the predictability of the result in any given

case. In cases that do not terminate in pleas of guilty, convictions after

trial are relatively frequent. Where the elements of a criminal violation
are proven, 187 neither the trier of fact nor the judge imposing sentence

need be concerned very often that the defendant honestly did not know
of the rule or misunderstood it. The per se rule's deterrent effect is
also enhanced by an increased risk of treble damages, particularly in

suits filed in the wake of criminal prosecutions by private plaintiffs
hoping to capitalize on the government's success. 188

"[W]ithout doubt," Judge Bork has written, "thousands of cartels

have been made less effective and other thousands have never been
broached because of the overhanging threat" of the per se rules that

forbid competitors to fix prices or divide markets. 189 Nothing in the

Court's recent decisions implies any tolerance for conventional price-

fixing. The agreements on price in these cases have not been conventional;
rather, they have been accompanied by potentially procompetitive col-

laboration in production or distribution or both.

2. Price-Fixing Accompanied by Potentially Procompetitive Col-
laboration.—As Justice White noted in Broadcast Music, "Mergers . . .

""Section 1 of the Sherman Act was amended in 1974 by the Antitrust Procedures

and Penalties Act, Pub. L. No. 93-528, § 3, 88 Stat. 1706, 1708. As amended, it provides

that every violator "shall be deemed guilty of a felony, and, on conviction thereof, shall

be punished by fine not exceeding one million dollars if a corporation, or, if any other

person, one hundred thousand dollars, or by imprisonment not exceeding three years, or

by both said punishments, in the discretion of the court." 15 U.S.C. § 1 (1982).
186Defendants in criminal cases have argued unsuccessfully that the rule is objectionable

for the opposite reason, i.e., that it deprives them of a jury trial on the issue of

"reasonableness." See, e.g., United States v. Manufacturers' Ass'n of the Relocatable

Bldg. Indus., 462 F.2d 49 (9th Cir. 1972).
187To establish a criminal violation of the Sherman Act, it must be shown that the

defendant acted either with the purpose of causing anticompetitive effects or with knowledge

that anticompetitive effects would probably result. United States v. United States Gypsum

Co., 438 U.S. 422, 443-46 (1978). In cases involving horizontal agreements on price, courts

have held that the requisite intent may be inferred from the fact of entry into the
agreement. See, e.g., United States v. Foley, 598 F.2d 1323, 1331 (4th Cir.), cert, denied,

444 U.S. 1043 (1979); United States v. Brighton Bldg. & Maintenance Co., 598 F.2d 1101
(7th Cir.), cert, denied, 444 U.S. 840 (1979). See generally Conway, The Per Se Rule

and Gypsum: Presuming the Element of Intent, 10 Mem. St. U.L. Rev. 485, 492-97

(1980), and cases cited; Garvey, The Sherman Act and the Vicious Will: Developing

Standards for Criminal Intent in Sherman Act Prosecutions, 29 Cath. U.L. Rev. 389,

396-400 (1980).
]8SSee R. Posner & F. Easterbrook, supra note 140, at 151-52.
,89R. Bork, supra note 22, at 263.



1987] PRICE-FIXING 627

eliminate . . . price competition, but they are not per se illegal, and

many of them withstand attack under any existing antitrust standard." 190

It is generally understood that restraints on competition that are "an-

cillary" to the formation of partnerships among competitors are defen-
sible under the rule of reason. 191

The critical difference, from the antitrust standpoint, between straight

price-fixing on the one hand and horizontal mergers and partnerships

on the other is that the latter are far more likely to be entered into
for procompetitive or competitively neutral purposes by firms with little

or no market power. Applying a per se rule to such arrangements would

condemn not only monopolistic mergers, which the Congress that passed
the Sherman Act clearly intended to forbid, 192 but also a great many
"combinations in aid of production where there is free and fair com-

petition," 193 which it clearly wished not to impede. 194

Like horizontal mergers and partnerships, some forms of horizontal

price-fixing involve potentially procompetitive collaboration on matters

other than price, such as production or distribution. Broadcast Music,

Maricopa, and NCAA all dealt with this type of price-fixing, involving
agreements quite different from simple cartels. Arguably, at least, a

refusal to recognize any distinctions here among horizontal price-fixing
agreements would constitute exactly the kind of "formalistic line draw-

ing" that the Court foreswore in Sylvania. 195

After Broadcast Music and NCAA, the question is not whether
exceptions to the general prohibition against agreements among com-
petitors on price will be recognized, but rather when. Potentially pro-

competitive collaboration among competitors is to be encouraged, within
limits, even if it involves agreement on prices. The task is to define
those limits, in terms sufficiently clear that exceptions to the general

prohibition do not swallow the rule or significantly impair its effectiveness

as a deterrent to "plainly anticompetitive" price-fixing.

It has been suggested, in the wake of Sylvania and Broadcast Music,
that no practice should be held unlawful per se if it has the potential

to create significant efficiencies. 196 Recast in terms of procompetitive

efficiencies, that suggestion would reflect fairly closely the spirit of Justice

190441 U.S. at 23.
l9l See R. Bork, supra note 22, at 264-67; cf. Louis, Restraints Ancillary to Joint

Ventures and Licensing Agreements: Do Sealy and Topco Logically Survive Sylvania and
Broadcast Music?, 66 Va. L. Rev. 879, 881-82, 902-05 (1980).

l92See supra note 161.
19321 Cong. Rec. 2457 (1890) (remarks of Senator Sherman).
i9*See supra text accompanying note 160.
,95433 U.S. at 58-59; see Maricopa, 457 U.S. at 362 (Powell, J., dissenting).
196Easterbrook, supra note 22, at 901; see also W. Liebeler, supra note 90, at 32.



628 INDIANA LAW REVIEW [Vol. 20:591

Powell's dissent in Maricopa. 197 The difficulty with the suggestion, as
applied to horizontal agreements fixing prices, lies in the vagueness of

the term "significant." It seems clear that in almost any case in which

the exception was claimed, the outcome would depend greatly on the

court's ad hoc evaluation of expert testimony about "significance." The

weight to be assigned to conflicting opinions on the nature and extent

of any efficiencies attributable to the arrangement, as well as opinions

on the ultimate issue, would have to be assessed. The result would be
a thoroughly ambiguous exception to a rule that presently serves the

purposes of the law in large part because of the credible threat of

criminal sanctions for its violation. Whether such a rule would pass

constitutional muster as a rule of criminal liability is open to question.

Whatever the answer, the consensus at least in the past has been that

in any case involving legitimate uncertainty as to whether specific conduct

is forbidden by the Sherman Act, criminal prosecution is inappropriate. 198

The effect of recognizing an exception to the general prohibition for

agreements with "significant" procompetitive efficiencies would be to

enlarge the realm of legitimate uncertainty to the point that the rule's

utility as a rule of criminal law and a deterrent to unreasonably anti-

competitive activity would be seriously undermined.

When the problem is viewed in that light, a much simpler solution
suggests itself: straight price-fixing should be unlawful per se; price-

fixing accompanied by collaboration on matters other than price should

not. Such a rule would be clear in most of its applications and would

encourage procompetitive collaboration. Unfortunately, however, it would

be far too permissive. It would exempt from per se condemnation

agreements that are indistinguishable on the merits from straight price-

fixing—agreements in which the price-fixing and the collaboration are
wholly independent of one another in practical terms. 199 It would also

make the per se rule ridiculously easy to evade. 200 Nothing in the Court's
decisions suggests any disposition to relax the rule this far.

x91See supra text accompanying notes 99-102 and 107-09.
198See, e.g., President's Commission on Law Enforcement and Administration of

Justice, Task Force Report: Crime and Its Impact — An Assessment 110 (1967);
Report of the Attorney General's National Committee to Study the Antitrust

Laws 349-51 (1955) [hereinafter Attorney General's Committee Report]; Baker, supra
note 182, at 412-14.

'"Consider, for example, an agreement among local dry-cleaning firms to buy chemicals

jointly in order to avail themselves of manufacturers' bulk discounts, accompanied by an

agreement to fix the price of dry-cleaning services. The joint purchasing agreement might

be procompetitive in that it might reduce the firms' costs and enable them to reduce

prices. The price-fixing agreement would add nothing. No purpose would be served by
exempting the price-fixing agreement in such a case from the operation of the per se rule.

200All that would be necessary would be to attach some wholly collateral potentially

procompetitive agreement to the agreement on price. See, e.g., the joint undertaking

described supra note 199.



1987] PRICE-FIXING 629

To qualify for an exception, therefore, the agreement fixing prices
must do more than "accompany" procompetitive collaboration; it must

promote or facilitate it in some way. The price-fixing agreement must

somehow contribute to the success of the collaboration.

The recent decisions are in full accord with that proposition. Each

involved an agreement on price that performed an essential function in

a larger potentially procompetitive scheme. In Broadcast Music, the

competing copyright owners' agreement on price "accompanie[d] the

integration of sales, monitoring, and enforcement against unauthorized

copyright use;" 201 it enabled the copyright owners to offer an attractive

product, a blanket copyright license, in competition with individual

licenses.
202 The agreement on price was a "necessary consequence" of

the procompetitive collaboration; without it, blanket licenses could not

be sold.203 In NCAA, as the Court noted, the defendant's rules and
regulations "play[ed] a vital role in enabling college football to preserve

its character, and as a result enable[d] a product to be marketed which

might otherwise be unavailable." 204 The sale of college football television

rights in exclusive package form allowed the NCAA members to extract
commitments from the networks that resulted in a wider distribution of

revenues among NCAA member schools, and potentially in a more
competitive product in the market for televised entertainment. 205 Once

again, if package licenses were to be sold, there had to be an agreement

among competitors on the price. Maricopa involved cooperation by
competing physicians in the provision of an attractive form of health

insurance that apparently could not be provided without a procedure

for setting maximum fees. The physicians' practice of developing max-
imum fee schedules collectively and then submitting them to insurers
performed that essential function. 206

An exception to the general prohibition against horizontal price-
fixing for agreements on price that perform an essential function in a

larger procompetitive undertaking promotes the interest of consumers in

competition without seriously threatening the enforceability of the general

prohibition as a rule of criminal law and a deterrent to price-fixing in

its most pernicious forms. It is consistent with the law's tolerance in

general for horizontal mergers and partnerships and with the long-

standing doctrine that restraints ancillary to an agreement with a lawful

main purpose are to be judged under the rule of reason, not a per se

rule.
207

201 441 U.S. at 20.
202

Id. at 21-23; see supra text accompanying notes 78-80.
203441 U.S. at 21.
204468 U.S. at 102.
205See id. at 94, 117, and supra text accompanying notes 116-17.
206457 U.S. at 339-41, 352; see supra text accompanying notes 85-86, 90.
201See Professional Engineers, 435 U.S. at 688-89; United States v. Addyston Pipe



630 INDIANA LA W REVIEW [Vol. 20:591

The exception as formulated leaves two important questions to be

resolved. The first concerns the use of price-fixing by competitors for

the purpose of raising prices, in order to finance potentially procom-

petitive collaboration. The second concerns the ultimate disposition in

Maricopa.

If price-fixing that performs an essential function in a larger pro-

competitive scheme is ordinarily spared from per se condemnation, what

about price-fixing that enables competitors to finance joint procompetitive

activity which they otherwise would not undertake? The Court's decisions

do not directly address this question. Recognition of a defense on this

ground would probably stimulate some joint procompetitive activity. It

would almost certainly be unwise, however, for two reasons. First,

recognition of such a defense would encourage agreements on price by

firms with collective market power. (Firms raising the defense would be

conceding, in effect, that collectively they have the power to raise prices

profitably by fixing them.) This type of price-fixing, defended on this

ground, would confront the courts with all of the intractable problems

involved in straight price-fixing—the power to charge unreasonable as
well as reasonable prices, the burden of continuing supervision, etc. 208

Second, recognition of the defense, like recognition of a general defense

for agreements with "significant" procompetitive potential, would se-

riously cloud the question of per se illegality in a great many cases. An
agreement among pipe manufacturers to rig bids on municipal contracts
for cast-iron pipe would be transformed from "clearly unlawful"209 to

"potentially defensible" by the addition of an agreement to conduct

joint research into new product development. Uniform price-fixing by

the makers of eighty-two percent of the vitreous pottery bathroom fixtures

sold in the United States, plainly unlawful when standing alone, 210 would
shift into the twilight zone if the firms simultaneously agreed to mount

a joint national campaign to inform consumers of the advantages of

vitreous pottery in the home. Whether the agreement on price really

was essential to the collaboration would be an issue in every case. The

result would be the creation of a large gray area, which firms with

collective market power would have every incentive to exploit.

All things considered, price-fixing that accompanies potentially pro-

competitive collaboration should be exempt from per se condemnation

only when it performs some essential function in that collaboration other

than raising prices. That would be entirely consistent with the recent

and Steel Co., 85 F. 271, 282-83 (6th Cir. 1898), modified, 175 U.S. 211 (1899); Louis,

supra note 191.
208See supra text accompanying notes 111-19.
209See Addyston Pipe & Steel Co., 85 F. at 282-83.
210United States v. Trenton Potteries Co., 273 U.S. 392 (1927).



1987] PRICE-FIXING 631

decisions. The parties to the price-fixing in these cases defended the

practice as an incident of the type of collaboration in which they were

engaged; they did not defend it, nor did the Court condone it, on the

ground that it enabled them to charge more for the product and benefit

the public thereby. 211

There, perhaps, the analysis would end, but for Maricopa. In Mar-

icopa, the physicians' agreements on maximum prices served the useful
function of capping fees in a cooperative insurance scheme, which had

to be done, apparently, to make the scheme work. What, then, distin-
guished that case from Broadcast Music and NCAA so as to justify the
entry of summary judgment for the plaintiff on the issue of per se
illegality?

It has been suggested that the answer is that Broadcast Music and

Maricopa are not genuinely distinguishable and that Maricopa was wrongly

decided.212 A contrary view, which has much to recommend it, is that
Maricopa represents a sound ad hoc application of the general criteria

for per se illegality stated by the Court in Sylvania and restated in one

form or another in virtually every subsequent per se decision:

Per se rules thus require the Court to make broad generalizations
about the social utility of particular commercial practices. The
probability that anticompetitive consequences will result from a

practice and the severity of those consequences must be balanced

against its procompetitive consequences. Cases that do not fit

the generalization may arise, but a per se rule reflects the judg-
ment that such cases are not sufficiently common or important
to justify the time or expense necessary to identify them. 213

Because the agreement on price in Maricopa facilitated procompetitive

collaboration among the doctors and insurers in the way it did, it could
not appropriately be condemned per se without further inquiry. On

21
'In Broadcast Music, the parties to the price-fixing apparently had substantial

collective market power. See 441 U.S. at 5; see supra text accompanying note 62; Cirace,

CBS v. ASCAP: An Economic Analysis of a Political Problem, 47 Fordham L. Rev.
277, 281 (1978). In NCAA, they clearly did. 468 U.S. at 111-12. In NCAA, the only
case in which the Court reached the merits under the rule of reason, the Court held that

the fact that the defendants controlled the sale of a product with no close substitutes

weighed against a finding in their favor. Id. at 115. At no point in these opinions did

the Court intimate that the exercise of market power through price-fixing could be defended

on the ground that the parties had put their monopoly profits to beneficial use.
2X2See, e.g., W. Liebeler, supra note 90, at 31-32.
2l3Sylvania, 433 U.S. at 50 n.16; see Northwest Wholesale Stationers, Inc. v. Pacific

Stationery & Printing Co., 472 U.S. 284, 289-90 (1985); NCAA, 468 U.S. at 103-04;
Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 15-16 & n.25 (1984); Maricopa,
457 U.S. at 343-45 & n.16; Catalano Inc. v. Target Sales, Inc., 446 U.S. 643, 648-49
(1980); Broadcast Music, 441 U.S. at 19-20; Professional Engineers, 435 U.S. at 692.



632 INDIANA LAW REVIEW [Vol. 20:591

further inquiry, the probability that anticompetitive consequences would

result from the practice was high. 214 Its function could be performed

another way at significantly less competitive risk: The maximum fee
schedules could be developed in the first instance by the insurers, who
would have derived no benefit from setting fees above the then prevailing

levels. The alternative procedure would have its costs; it would be less

efficient. The question, then, came down to whether there was "reason
to believe," on the record before the Court, "that any savings that

might accrue from this arrangement would be sufficiently great to affect

the competitiveness of these kinds of insurance plans" or otherwise to

justify the competitive risks inherent in the practice. 215 The Court con-

cluded that there was none. That conclusion, it appears, was well founded.

The only economies possible from the arrangement were those that might

result from having the doctors canvassed concerning fees by their own
foundations rather than by the insurers. Had the Court decided the per
se issue the other way, the plaintiff in Maricopa (and subsequent plaintiffs

in similar cases) would have faced lengthy and difficult burdens of proof

on the issues of power and effect, simply to preserve very small gains

from a practice with very large anticompetitive potential.

Given the nature of the inquiry under the Sylvania test and the

uncertainty of the outcome, even where the result is per se condemnation,

considerations of fairness militate against the imposition of criminal

sanctions. In general, then, horizontal agreements on price that accom-

pany potentially procompetitive collaboration and perform some essential

function other than raising prices are inappropriate for felony prosecution

and punishment. There are, arguably, two exceptions: agreements entered

into for the primary purpose of raising prices above competitive levels,

where the agreement to collaborate on something potentially procom-

petitive is a pretext; 216 and practices that have previously been author-

itatively held (as the maximum fee arrangements in Maricopa have now
been held) to be unlawful per se.217

IV. Conclusion

For many years it has served the law's purpose to state flatly that
"price-fixing" is unlawful wherever found, without precisely defining

2l4See supra text accompanying notes 103-05.
215457 U.S. at 352-54; see supra note 98.
2]6See Attorney General's Committee Report, supra note 198, at 350-51 (criminal

prosecution appropriate where there is proof of a "specific intent to restrain trade"); cf.

United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 220 (1940) (defendants sought

"[t]he elimination of so-called competitive evils . . . primarily for its effect on the price

structures;" criminal convictions for "price-fixing" affirmed).
211

See, e.g., President's Commission on Law Enforcement and the Administration
of Justice, Task Force Report: Crime and Its Impact — An Assessment 110 (1967)



1987] PRICE-FIXING 633

the term. Under this rubric, a great many horizontal agreements on
price have been condemned without regard to purpose, power, or effect.

Agreements among competitors fixing the prices of their products would
appear to be "price-fixing," if anything is. Nevertheless—because old
cases sustaining such agreements have never been squarely overruled,

because lower courts have occasionally recognized exceptions without

being chastised, because even statutes allow for interpretation contrary

to their "plain meaning" where a literal interpretation would produce

an anomalous result, because antitrust law lends itself so poorly to

absolutes—there has always been some reluctance to declare that the
fixing of prices by competitors in combination offends section 1 of the

Sherman Act no matter what form it takes. Now it is clear that it does
not.

The decisions in Broadcast Music, Maricopa, and NCAA all proceed
from the same basic premise: when competitors combine to fix the price
of what they sell, the law's first concern is to protect the economic

interests of consumers in competition. Ordinarily the competitive risks

of such combinations sufficiently outweigh the competitive benefits to

justify a flat prohibition, backed by severe sanctions. The exceptional
cases—the cases in which the Court has recognized exceptions—are those
in which the competitors' agreement on price accompanies potentially

procompetitive collaboration on matters other than price and performs

an essential function in that collaboration other than raising prices.

Ordinarily, the cases suggest, where those conditions are met, as they

were in Broadcast Music and NCAA, the applicable standard under
section 1 is the rule of reason. Such practices are unlawful per se only

if, as in Maricopa, further inquiry discloses that the competitive benefits

are so slight in relation to the competitive risks that recognition of an

exception to the general rule of per se illegality for horizontal price-

fixing agreements would do more harm than good.
These principles have potentially wider application. The per se rule

against "price-fixing" has been applied to a variety of horizontal re-

straints on price competition other than agreements among competitors
on price.218 Catalano219 is the Court's most recent decision in this line.
Like most of the agreements in these cases, the arrangement struck down
in Catalano—a compact among wholesalers to discontinue the extension
of trade credit to retailers—involved no agreement to engage in pro-
competitive collaboration on matters other than price. Arguably, at least,

(criminal prosecution appropriate in antitrust cases where "it appears that the defendants

knew they were violating the law or were acting with flagrant disregard for the legality

of their conduct . . . .").
lx%See supra note 4.
219446 U.S. 643 (1980); see supra text accompanying notes 81-83.



634 INDIANA LAW REVIEW [Vol. 20:591

when a horizontal price restraint of any type performs an essential
function (other than raising prices) in a larger procompetitive scheme,

on the principles of Broadcast Music, Maricopa, and NCAA, it ought
not be held unlawful per se without further inquiry into the availability

of less restrictive alternatives and a comparison of the risks and benefits.

Horizontal restraints on price and output, the Court affirmed in

NCAA, are "the paradigmatic examples of restraints of trade that the
Sherman Act was intended to prohibit."220 So long as protection of the

economic interests of consumers in competition remains the primary

objective, a per se prohibition against agreements among competitors
on the price of what they sell is sound as a general rule. The problem
is to frame the exceptions so as to encourage procompetitive collaboration

among competitors, without imposing an untenable burden of supervision
upon the courts or blunting the force of the per se rule as a deterrent
to pernicious price-fixing agreements. Though the Court's decisions and
opinions in Broadcast Music, Maricopa, and NCAA do not supply a
complete solution, they do point the way.

220468 U.S. at 107-08.