March 30, 2017
As Judge Neil Gorsuch proceeds through the Senate confirmation process, we are continuing to review his jurisprudence while assessing how he might affect the Supreme Court should the Senate approve his nomination. If confirmed, Judge Gorsuch is likely to play a pivotal role in the development of antitrust law, the focus of this alert, including in the near future, as a host of antitrust issues are ripe for the Court’s review.
During the course of his professional career, Judge Gorsuch has amassed substantial antitrust experience, both as a practitioner and a judge. As a practicing attorney, his experience included both defense- and plaintiff-side antitrust work. In one notable instance, he took an antitrust case to trial and obtained a $1.05 billion treble-damage award for his client. He also taught antitrust law at the University of Colorado Law School. Although Judge Gorsuch has disclaimed any particular antitrust expertise, his credentials suggest otherwise, and Judge Gorsuch would be one of the most practically experienced antitrust practitioners to join the Court since Justice Stevens.
Judge Gorsuch’s opinions are consistent with the Court’s modern antitrust jurisprudence. In his most high profile antitrust opinion as a judge of the U.S. Court of Appeals for the Tenth Circuit, Judge Gorsuch summed up what may be a guiding principle in resolving antitrust disputes: "antitrust evinces a belief that independent, profit-maximizing firms and competition between them are generally good things for consumers." Antitrust law, he explained in another opinion, should recognize that "[a]llowing a business to reap the fruits of its investments is an important element of the free-market system." He further has explained that courts should avoid results that "risk reducing the incentive . . . to innovate, invest, and expand," and he joined an opinion articulating the principle that, "[h]aving invested time and money," the defendant should be able to "recoup its investment." Most recently, during his confirmation hearing for his nomination to the Supreme Court, Judge Gorsuch stated that the antitrust laws "were the original regulatory machine . . . . That was it for the national economy for a long time. They’re still vital and brilliant in their simplicity and design."
These comments, along with the decisions and matters summarized below, provide a glimpse into how Judge Gorsuch might address antitrust disputes as a sitting Justice.
While on the Tenth Circuit, Judge Gorsuch’s most significant antitrust decision vindicated Microsoft’s entitlement to protect the code for its Windows operating system. The dispute at issue in the case arose with the release of Windows 95. Novell wanted its software (WordPerfect) to run on the Windows operating system as a competitor to Microsoft Word, but Microsoft opted not to share the code for Windows 95 with other software vendors. Claiming this refusal put it at a disadvantage, Novell sued alleging that Microsoft had sought or maintained a monopoly by refusing to deal with competitors. The ensuing trial resulted in a hung jury, and the district court entered judgment as a matter of law in favor of Microsoft. The Tenth Circuit affirmed.
Writing for a unanimous panel, Judge Gorsuch articulated an approach to refusal-to-deal claims that wholly embraces the reasoning of Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004), and Pacific Bell Telephone Co. v. Linkline Communications, Inc., 555 U.S. 438 (2009). He noted the expansive view of "some courts" that "a monopolist must lend smaller rivals a helping hand," but, consistent with Supreme Court precedent, he found persuasive decisions that "emphatically reject[ ] this approach" and "realize[ ] that the proper focus of section 2 isn’t on protecting competitors but on protecting the process of competition." Antitrust law, he continued, generally "protect[s] unilateral conduct," and the refusal-to-deal doctrine is a narrow exception that requires plaintiffs to thread a "narrow-eyed needle," which Novell had not done. Judge Gorsuch also noted that, if antitrust laws were to require monopolists to ease the way for competitors, the result "would paradoxically risk encouraging collusion between rivals and dampened price competition–themselves paradigmatic antitrust wrongs, injuries to consumers and the competitive process alike."
Judge Gorsuch confronted another refusal-to-deal theory in Four Corners Nephrology Associates. The defendant hospital sought to attract a nephrologist to its facility by enticing her with an exclusive practice at the hospital. This exclusivity was important because the location of the hospital was unlikely to be profitable for a larger nephrology practice. When the hospital later denied another nephrologist access to the hospital, he sued under Section 2 of the Sherman Act. The district court granted summary judgment in favor of the hospital, and the Tenth Circuit affirmed.
Writing for a unanimous panel, Judge Gorsuch explained that the hospital’s refusal to deal was not anticompetitive conduct under the antitrust laws. He emphasized the presumption that unilateral conduct does not violate the antitrust laws, and noted that the hospital should be permitted to exclude once it made an investment. "Having made a substantial investment in developing its own nephrology practice," he reasoned, the hospital "is entitled to recoup its investment without sharing its facilities with a competitor."
In a case at the intersection of state sovereign immunity and antitrust law, Judge Gorsuch held that a municipality could not invoke the state action immunity doctrine to avoid liability under the antitrust laws. The plaintiff (a rural electric cooperative) and the defendant (the municipality) submitted rival bids to provide electricity to a new jail on the outskirts of Newkirk, Oklahoma. The cooperative submitted the better offer, but the city threatened that it would provide the jail with no sewage services if the jail did not accept the city’s offer. Because the city was the only provider of sewage services, the jail accepted the city’s bid. The plaintiff accused the city of illegal tying and attempted monopolization, and the district court dismissed the suit based on the doctrine of state action immunity, which generally exempts from the antitrust laws conduct by a state to establish regulation or public services in place of competition.
The Tenth Circuit reversed and remanded in an opinion by Judge Gorsuch. His opinion focused on whether the state law expressly empowers the municipality to engage in anticompetitive conduct (as state action immunity protects a municipality only to the extent that a state law authorizes its conduct). The relevant state law, he reasoned, reflects a clear preference for–not against–competition, and therefore it did not authorize the municipality’s conduct. Accordingly, Newkirk "has to play by the same rules as everyone else," and it "can’t abuse its monopoly power or conspire to suppress competition," given the absence of authorization from the state. Judge Gorsuch remanded the case to the district court for proceedings on the merits of the antitrust claim.
In addition to the written opinions discussed above, Judge Gorsuch also voted to join three other notable antitrust decisions in the Tenth Circuit:
Dismissing "refusal to deal" monopolization claim based on reasoning similar to that in Novell: The plaintiff in Christy Sports, LLC v. Deer Valley Resort Co. was a ski rental company that sought to extend a lease at Deer Valley Resort and claimed that the resort’s refusal to agree to the extension violated Section 2 of the Sherman Act. The district court dismissed the rental company’s complaint, and the Tenth Circuit affirmed in an opinion authored by Judge Michael W. McConnell and joined by Judge Gorsuch. According to the opinion, Deer Valley’s extensive investments enabled it to exclude others from its property without engaging in anticompetitive conduct. "[T]he creator of a resort," the court reasoned, "has no obligation under the antitrust laws to allow competitive suppliers of ancillary services on its property," especially because resort investments "increase[ ] competition in the ski industry as a whole."
Dismissing antitrust conspiracy allegations based on Copperweld single-entity doctrine: In Native American Distributing v. Seneca-Cayuga Tobacco Co., the plaintiffs alleged that the four defendants–a company and three individual officers of the company–had conspired to violate Section 1 of the Sherman Act. The district court dismissed the conspiracy claim, and the Tenth Circuit affirmed in an opinion authored by Judge Mary Beck Briscoe and joined by Judge Gorsuch. Among other things, the court reasoned that under the "single-entity rule" articulated by the Supreme Court in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), the individuals "were functioning as officers of a single enterprise" and therefore were "not separate economic actors who could, by their agreement, give rise to antitrust violations."
Dismissing antitrust conspiracy allegations based on the Noerr-Pennington doctrine: Coll v. First American Title Insurance Co. involved claims against title insurers and the New Mexico Superintendent of Insurance (who had statutory authority to set title insurance premiums), alleging that they had conspired to set unreasonably high premiums and engaged in bribery and corruption. The district court granted a motion to dismiss, and the Tenth Circuit affirmed in an opinion authored by Judge David M. Ebel and joined by Judge Gorsuch. The court held that the claim of collusion was precluded under the Noerr-Pennington doctrine, which exempts from antitrust liability the conduct of private parties attempting to influence government action. The court further rejected the plaintiffs’ argument that bribes and other naked corruption are not protected by Noerr-Pennington, reasoning that such an exception would "vitiate Noerr-Pennington almost entirely because there is hardly any lobbying effort that is not open to at least a charge of some illegal dealings when important economic interests are at stake."
Judge Gorsuch’s career in private practice also provides some insight into his depth of experience with–and his possible approach as a Justice to–antitrust matters. As a practitioner, he handled antitrust lawsuits from discovery through appeals, representing both plaintiffs and defendants.
From 1995 to 2005, Judge Gorsuch worked in private practice until leaving for a short stint at the Department of Justice, and then ultimately joining the Tenth Circuit. Although Judge Gorsuch "consciously sought to maintain a general litigation practice and avoid specialization," several of his cases in private practice involved antitrust claims. These cases ran the gamut from conspiracy claims under Section 1 of the Sherman Act, to refusal to deal and exclusionary conduct cases under Section 2. One of Judge Gorsuch’s antitrust cases went to trial in 2002, resulting in a jury verdict of $1.05 billion for his client, which at the time was among the largest private antitrust judgments ever in the United States. Judge Gorsuch’s other antitrust cases involved complex pleading challenges, substantial discovery, and client counseling. In short, Judge Gorsuch will bring a robust experience in antitrust matters to the Supreme Court should the Senate confirm his nomination.
On behalf of Conwood Co., L.P., a manufacturer of moist snuff smokeless tobacco, Judge Gorsuch brought Sherman Act Section 2 monopolization claims against the dominant manufacturer in the industry, United States Tobacco ("UST"). Conwood alleged that UST engaged in a multiyear scheme to interfere with Conwood’s distribution in stores by entering into exclusive dealing arrangements with retailers, removing Conwood’s racks and product placements, interfering with Conwood’s in-store advertising, and providing misleading information to retailers.
Judge Gorsuch was involved in every aspect of the case. According to his confirmation questionnaire submitted in connection with his nomination to the Tenth Circuit, Judge Gorsuch "helped manage and run the case at all stages, from the pre-suit investigation through the drafting of the complaint; the discovery process; pre-trial motions practice; trial, where [he] served as second chair and handled many witnesses on direct and cross; post-trial motions practice; and the preparation of appellate briefs."
After a four-week trial, the jury returned a verdict in favor of Conwood for $1.05 billion (after trebling). UST challenged the verdict arguing primarily that Conwood had failed to establish that UST excluded Conwood from the relevant market. Both the district court and the court of appeals (in a significant and widely cited decision) ruled that, although Conwood had not presented evidence of UST’s conduct in each of the thousands of stores where the tobacco products were sold, Conwood’s testimonial and documentary evidence were sufficient to establish that UST had engaged in exclusionary conduct. Conwood also defeated UST’s challenges to the damages calculations and expert testimony. Notably, the Obama Administration touted Conwood as an influential "example of successful challenges to exclusionary conduct."
Although he was already on the bench by the time the landmark Twombly case reached the Supreme Court, Judge Gorsuch represented in the lower courts one of the defendants facing the conspiracy allegations in that case. The defense group moved to dismiss on the ground that the plaintiffs had not "alleged sufficient facts from which a conspiracy to violate the Sherman Act can be inferred." The district court agreed, but the Second Circuit reversed. In 2007, the Supreme Court vindicated the district court’s view and issued its seminal opinion establishing the modern day "plausibility" pleading standard.
Around the same time that Twombly was making its way through the courts, Judge Gorsuch was involved in a refusal-to-deal case on behalf of the same telecommunications client sued in Twombly–SBC Communications, Inc. The plaintiff in that case, a competitor to SBC, alleged, among other things, that SBC and its affiliates had monopolized certain telecommunication markets by refusing to allow the plaintiff to connect to SBC’s network facilities, had interfered with the plaintiff’s customer relations, and had made disparaging remarks. SBC moved to dismiss the complaint, arguing that the just-decided Supreme Court case Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004), foreclosed much of the plaintiff’s antitrust theory. The district court disagreed, finding that the plaintiff’s monopolization and refusal-to-deal theories survived Trinko.
In another case–one of his earliest as a partner in private practice–Judge Gorsuch asserted a Sherman Act Section 1 conspiracy claim on behalf of his client Zachair, Ltd., against several defendants involved in the sale of a commercial tract of land. Zachair alleged that the defendants were related corporate entities and that their agents had conspired to harm Zachair through the sale. The district court dismissed Zachair’s complaint for failure to state a claim based on the Copperweld doctrine, which provides that "[a] corporation and its wholly-owned subsidiary are not capable of conspiring." The district court held, and the Fourth Circuit affirmed, that "Zachair’s own allegations show[ed] that the Defendants are related entities incapable of restraining trade within the meaning of the Sherman Act." Moreover, although other claims asserted by Zachair were not dismissed and the case eventually proceeded to trial, the dismissal of the antitrust claim was with prejudice and Zachair lost its bid on appeal to replead.
If confirmed to fill Justice Scalia’s seat on the Court, Judge Gorsuch could immediately confront several important issues in antitrust law, including (1) Section 1 pleading rules, (2) the extraterritorial reach of antitrust laws, (3) the controlling antitrust standards for analyzing pharmaceutical reverse payments, (4) whether the rule of reason or per se rule applies to certain agreements, and (5) the antitrust implications of exclusive dealing arrangements.
First, the Court recently granted certiorari in a case that would have examined whether membership in a business association, standing alone, can be the basis for inferring conspiracy under Section 1 of the Sherman Act. The case drew substantial interest from the class action bar and business sectors, and many commentators hoped the Court would clarify Twombly and pleading standards in Section 1 matters. The Court eventually dismissed the writ as improvidently granted, however, when the petitioner, having persuaded the Court to review the pleading standard issue, raised unrelated arguments in its merits briefing. Given business and consumer interest in having clear Section 1 pleadings standards, growing disagreement over the interpretation of Twombly, and the Court’s interest in deciding the issue, we expect the Court will likely look for another vehicle to address the issue in the future.
Second, it seems only a matter of time before the Court is confronted with the permissible reach of U.S. antitrust laws and the extraterritorial limits on such laws set forth in the Foreign Trade Antitrust Improvements Act ("FTAIA"). In 2015, the Court declined review in two appeals from different circuits raising these issues in the context of a litigation over an alleged global cartel to fix prices for liquid crystal displays. The lower courts are divided over the FTAIA’s scope and limitations, and the divergences are likely to continue, deepen, and require the Court’s intervention.
Third, lower courts are struggling to apply the Court’s guidance in FTC v. Actavis concerning how to analyze the antitrust implications of pharmaceutical reverse-payment claims. In that case, the Court stated that "unexplained large reverse payment[s]" are an indicator of "serious doubts about the patent’s survival" and likely reflect an objective "to maintain supracompetitive prices" instead of to avoid litigation. But it remains unclear precisely what explanations are sufficient to justify large payments in the reverse-payment context, and lower courts are turning to various other factors in order to analyze the propriety of such arrangements. Notably, during his confirmation hearing for his nomination to the Supreme Court, Judge Gorsuch referred to Actavis as a "great case."
Fourth, the lower courts are split over the application of the rule of reason or per se rule to certain agreements. For example, the Tenth Circuit recently acknowledged "a circuit split about whether a tying case examined under the rule of reason" requires the plaintiff to prove that the defendant had market power in the tying market. Additionally, the Supreme Court may (again) be asked to decide whether vertical agreements alleged to be part of hub-and-spoke conspiracies should be evaluated under the per se standard or the rule of reason. Leegin clarified that "the per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue" and when that restraint "would always or almost always tend to restrict competition." The Court also stated that, if a "vertical agreement setting minimum resale prices is entered upon to facilitate [a horizontal] cartel, it . . . would need to be held unlawful under the rule of reason." Following Leegin, the Third Circuit applied the rule of reason to review a vertical agreement that allegedly facilitated a horizontal conspiracy. But the Second and Fifth Circuits subsequently held that Leegin did not require application of the rule of reason in similar situations. Given these growing circuit splits, the Supreme Court may soon clarify whether the rule of reason should apply in these contexts.
Fifth, the Supreme Court has not weighed in on an exclusive dealing dispute in some time, and there is growing division among the lower courts regarding the analytical framework for resolving these claims. On the one hand, for example, the FTC and the Eleventh Circuit both concluded that a manufacturer engaged in an unlawful monopoly when it used an exclusive dealing arrangement to foreclose a substantial share of the market even though a competitor entered the market and acquired a 10% share within two years. The Tenth Circuit has similarly concluded that a "single competitor’s breakthrough does not preclude a finding" of monopoly power. On the other hand, the Second Circuit has held that, "as a matter of law," a competitor’s "successful entry . . . itself refutes any inference of the existence of monopoly power." The Ninth Circuit also has held that a competitor’s successful market entry "conclusive[ly]" proves that no monopoly exists. Shortly after Justice Scalia’s death, the eight-member Court denied certiorari in a case urging the Court to resolve this lower-court division, creating an opportunity for Judge Gorsuch to cast a key vote when a future case invites the Court to clarify how to analyze exclusive dealing arrangements under antitrust laws.
With these and other important issues in antitrust law making their way to the Court, and with the Senate nearing a vote on his nomination, we may soon get our first glimpse into how Judge Gorsuch would apply his experience in this area as a sitting Justice.
 Nomination of Neil M. Gorsuch, Nominee to be Circuit Judge for the Tenth Circuit: Nominee Questionnaire, at 14, available at http://online.wsj.com/public/resources/documents/2016_0131_gorsuch_confirmation.pdf (hereinafter "Confirmation Hearing Questionnaire").
 Remarks by Christine A. Varney, Assistant Attorney General, Antitrust Division, Department of Justice, "Vigorous Antitrust Enforcement In This Challenging Era" (May 12, 2009), available at https://www.justice.gov/atr/speech/vigorous-antitrust-enforcement-challenging-era.
 Compare Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816 (7th Cir. 2014), cert. denied, 135 S. Ct. 2837 (2015), with United States v. Hui Hsiung, 778 F.3d 738, 742 (9th Cir.), cert. denied, 135 S. Ct. 2837 (2015).
 See, e.g., In re Musical Instruments & Equip. Antitrust Litig., 798 F.3d 1186 (9th Cir. 2015); United States v. Apple, Inc., 791 F.3d 290 (2d Cir. 2015); MM Steel, L.P. v. JSW Steel (USA) Inc., 806 F.3d 835 (5th Cir. 2015); Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc., 530 F.3d 204 (3d Cir. 2008).
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