IBS 611
LEGAL ISSUES IN GLOBAL ENVIRONMENT
THE MULTINATIONAL ORGANIZATION AND THE UNFAIR COMPETITION LAWS

INTRODUCTION

The purpose of this paper is to discuss the name and describe the different types of structural organizations used by multinational corporations. The different organizational structures are the parent company, the nonmultinational enterprise, the national multinational enterprise, and the international multinational enterprise. I will also discuss the home state regulation of multinational enterprises. The forms of regulations discussed in this paper will be the Sherman Antitrust Act, the Clayton Act and the Robinson-Patman Act. Also there effects on business in the 21st century.

THE MULTINATIONAL ORGANIZATION

The Parent Company
To carry out operations internationally, large business have adapted their organizational structures to share risks and to take advantage of economies of scale. The simplest international operating structure is the “nonmultinational enterprise,” in which a firm organized in one country contracts with an independent foreign firm to carry out sales or purchasing abroad. Somewhat more complex is the “national multinational enterprise,” in which a parent firm established in one country establishes wholly owned branches and subsidiaries in other countries. The most complex is the “international multinational enterprise” made up of two or more parents from different countries that co-own operating businesses in two or more countries. (August, R. 2000, International Business Law)
The Nonmultinational Enterprise
Many domestic firms function in the international marketplace through a foreign agent. The agent, who may be a private individual or an independent firm, acts on behalf of the domestic firm or “principal” to either sell the principal’s goods or services abroad (in which case the agent is commonly called a “sales representative”) or to buy goods or procure services for the principal (the agent sometimes being called a “factor”). Neither the principal nor the agent are truly multinational enterprises, however, because neither operates outside its home state. Their relationship is governed by an agency contract and by the agency laws of the home and host countries. (August, R. 2000)

The Parts of a Multinational Enterprise
Parent Company
Company that acts as the head office for a multinational enterprise and that owns and controls the enterprise’s subordinate entities. (August, R. 2000).
Representative office
The representative office is a contact point where interested parties can obtain information about the company. It does not conduct business for the company. (August, R. 2000).

Agent
The agent is an independent person or company with authority to act on behalf of the enterprise. Agents are subject to supervision of the parent firm and the authority that they can exercise is limited to what the parent delegates to them. (August, R. 2000).
Branch
The Branch is a unit of the parent company that involves not only the placement of individuals in a particular locale, but also the establishment of a facility, such as an assembly plant, mining operation, or service office. As with an agency, the authority of branch personnel, including manager and employees, is limited to what the parent has delegated.
Establishing representative offices, agencies, and branches is advantageous because these entities allow the parents to maintain direct control of the foreign operation. The practice can be disadvantageous, however, because (1) the parent has to assume all of the risk of investing abroad, (2) a foreign firm (or its agent or its branch) is often taxed at higher rates than local firms, and (3) many developing states require local participation in order for a foreign firm to either invest or expand its local investment. Because of these disadvantages many multinational enterprises set up subsidiaries, joint ventures and holding companies. (August, R. 2000).
Subsidiary
Subsidiaries are companies owned by a parent or parent’s holding company. Unlike a branch, it is separately incorporated. (August, R. 2000).
Joint venture
A joint venture is an association of persons or companies that are involved in a collaboration for more than a transitory period. It can assume any type of business form, including that of an association, a partnership, a limited partnership, a secret partnership, or a limited liability company. (August, R. 2000).

Holding company
A holding company is a subsidiary company that in turn owns other subsidiaries. Holding companies are created primarily (a) to establish a consolidated management team for a group of subsidiaries or subsidiaries owned by different parents or (b) for tax advantages. Commonly, a holding company is a limited liability company whose shares are held by its parent or parents. (August, R. 2000).
The National Multinational Enterprise
A national multinational enterprise consists of a firm in one country operating in other countries through branches and subsidiaries. The parents of national multinationals are mostly found in the United States or Japan. An example is:
The Ford Motor Company and Mitsubishi Incorporated in the United States in the state of Michigan in 1903, the Ford Motor Company in its early years employed sales representatives in many foreign countries. As sales increased, branch sales offices were opened, then branch assembly plants. Because of tax considerations and to insulate the parent company from local liability, the branches were converted into locally organized subsidiaries. For a brief period some of the foreign subsidiaries were jointly owned by local investors; but following WWII, Ford reacquired direct ownership of its entire overseas operation. (August, R. 2000).
The Mitsubishi Group is a Japanese multinational made up of about 40 individual companies. Unlike Ford, however, there is no parent company. Each of the Mitsubishi company owns substantial portions of the shares of the others. Instead of a parent company exercising control over subsidiaries, the Group operates under the direction of a triumvirate of the three most important sister companies: the Mitsubishi Bank, the Mitsubishi Corporation, and Mitsubishi Heavy Industries. The senior managers of these three companies act as the co-chairmen of a coordinating board call the Kinyo-Kai. The Kinyo-Kai, which is made up of the top executives of 26 of the Mitsubishi companies, establishes common policies as a sort of “senior board of directors” for the entire Group. (August, R. 2000).
The International Multinational Enterprise
The international multinational enterprise is like a national multinational that it operates through subsidiaries. The difference is it has two or more parent companies located in different states. Most international multinationals have come about from merger or parent firms operating operating in different Western European countries. Their structures are based on (a) common directors on the boards of the parent companies and (b) the joint ownership of subsidiaries.
Example of international multinational with common directors is Unilever. Unilever is a combination of Dutch and British parent companies that together own and operate subsidiaries around the world. The two parent companies are governed by an “equalization agreement” that has been incorporated into the Articles of Association of both. It arranges for the boards of both parents to be made up of the same individuals, and it guarantees equal treatment for both companies’ shareholders. To ensure that the directors are the same, both parents have set up wholly owned subsidiaries and transferred half of a special class of their won shares to each of these subsidiaries and transferred half of a special class of their own shares to each of these subsidiaries. This special class of shares has this exclusive right to nominate directors; the ordinary shareholders are only allowed to elect directors who are nominated by the wholly owned subsidiaries. (August, R. 2000).

Home State Regulation of Multinational Enterprises
To the extent that a multinational enterprise operates within the domestic marketplace of its home country, the home country regulates it in the same way that national enterprises are regulated. The most important forms of national regulation include (a) the regulation of competition, (b) the regulation of injuries caused by defective products, (c) the prohibition of sharp sales practices, (d) the regulation of securities, (e) the regulation of labor and employment, (f) the establishment of accounting standards, and (g) taxation. With the growth of international trade, many of these rules have been applied to activities that take place outside the territorial boundaries of a particular state, most notably, the first three: the regulation of competition, regulation of injuries caused by defective products, and the prohibition against fraudulent sales practices. (August, R. 2000).
Unfair Competition Laws
In the United States, the principal laws regulating anticompetitive activity are the Sherman Antitrust Act, the Clayton Act, and the Robinson-Patman Act.
Sherman Antitrust Act
Sherman Antitrust Act, basic federal enactment regulating the operations of corporate trusts, passed by the U.S. Congress in July 1890, through the efforts of Senator John Sherman of Ohio. The act declared illegal "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." Criminal penalties were provided for violators of the law, and aggrieved persons were entitled to recover three times the amount of losses suffered as a result of the violation. The Sherman Act has been amended and supplemented by several subsequent enactments. Most notable among these enactments was the Clayton Antitrust Act of 1914. www.encarta.msn.com
Case: COVAD Communications Co. and DIECA Communications, Inc. d/b/a COVAD Communications, Co., v. Bellsouth Corp. and Bellsouth Telecommunications, Inc.

Legal Issue
Whether the Telecommunications Act of 1996 precludes application of Section 2 of the Sherman Act, 15 U.S.C. 2, to allegations that an incumbent local exchange carrier has monopolized or attempted to monopolize a market for local telecommunications services through anticompetitive conduct that may also be subject to the 1996 Act?
Facts
• Appellant Covad's complaint in this case alleges, inter alia, that BellSouth violated Section 2 of the Sherman Act, unlawfully maintaining monopoly power in "the Local Internet Access Markets in the BellSouth Region" (Compl. ¶¶ 45, 111, 115(2)) by denying Covad reasonable access to network facilities over which BellSouth has a monopoly ((Compl. ¶¶ 12-13 ("the market for central offices, loops, transport and other equipment necessary to make local telephone connections")). Covad alleges that it seeks to provide internet access service in competition with BellSouth and that its internet access service package is superior in price and performance to BellSouth's competing services. (Compl. ¶14.)
• However, "[b]ecause Covad's market entry and service offerings pose a real threat to BellSouth's monopoly power in the Local Internet Access Markets in the BellSouth Region, . . . BellSouth has engaged in a wide variety of unlawful, exclusionary and anticompetitive acts with the intent and inevitable effect of injuring, thwarting or eliminating Covad as an actual or potential competitor." (Compl. ¶ 45.)
• The district court granted BellSouth's motion to dismiss as to most of Covad's antitrust claims. Order (July 6, 2001).(4) The court "agree[d] with the Goldwasser court" that "antitrust claims which allege[d] exclusionary conduct arising from the failure to perform duties under the 1996 Act" should be dismissed. Id. at 24. The district court noted that the 1996 Act imposes on incumbent local exchange carriers certain affirmative duties to provide interconnection and access to network elements. Id. The court acknowledged that the 1996 Act also "contains specific language about its relation to the federal antitrust laws," expressly providing that "nothing in the [1996 Act] shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws.'" Id. at 13 (quoting 1996 Act, §601(b)(1)).
• Nonetheless, the district court quoted and apparently applied the Goldwasser court's statement that, despite this express savings clause, "'the elaborate enforcement structure' of the 1996 Act precludes suits under the Sherman Act for ILEC [incumbent local exchange carrier] duties because 'antitrust laws would add nothing to the oversight already available under the 1996 law.'" Order at 15 (quoting 222 F.3d at 400-01). The court did not identify any conflict between the 1996 Act and the antitrust laws. To the contrary, it quoted the Seventh Circuit's observation in Goldwasser that while "the 1996 Act 'imposes duties on ILECs that are not found in the antitrust laws,'" these duties under the 1996 Act "'do not conflict with the antitrust laws either, they are simply more specific and far-reaching obligations that Congress believed would accelerate the development of competitive markets.'" Order at 15 (quoting 222 F.3d at 401).

• Turning to the allegations in Covad's complaint, the district court acknowledged that, in some circumstances, a monopolist's unilateral refusal to deal may violate the antitrust laws. Order at 21-22. Although Covad had argued that its Sherman Act claims were not based on the theory that violations of the 1996 Act automatically constitute antitrust violations, the district court characterized Covad's allegations that BellSouth had denied competitors access to essential facilities as "aris[ing] from BellSouth's duties under the 1996 Act and Covad's interconnection agreement with BellSouth." Order at 23. The alleged denials of access, the court said, without further explanation, "clearly represent affirmative duties which are above and beyond the requirements of the Sherman Act." Id. at 24

• The Court also found Covad's allegation that BellSouth had intentionally delayed processing Covad orders "'inextricably linked' with BellSouth's duties under the 1996 Act," and held that it therefore failed to state a claim under Section 2 of the Sherman Act. Order at 25 (quoting Goldwasser). And the court dismissed Covad's price squeeze allegations "for the same reasons that its essential facilities allegations fail," i.e., because they were "intertwined with" and "related to BellSouth's duties under the 1996 Act." Order at 26-28 & n.14. Similarly, the district court found claims based on misappropriation of customer information to be "included under the 1996 Act" and, for that reason, not properly the basis for an antitrust action. Order at 30. It let stand Covad's "monopoly leveraging" allegations only to the extent they were based on "misleading advertising and other activities not implicated by the 1996 Act," rather than on "BellSouth's failure to permit collocation to competitors." Order at 33-34. In contrast, the court expressed skepticism about, but did not dismiss, allegations regarding "predatory advertising and promotion," finding that "these allegations could be considered 'freestanding antitrust claims' outside the coverage of the 1996 Act." Order at 29-30.(6)
Rule of Law
1. Sherman Antitrust Act Section 2
Reasoning/Analysis
• A plaintiff alleging unlawful monopolization must establish that the allegedly exclusionary conduct reasonably appeared capable of making a significant contribution to the maintenance of the defendant's monopoly power. 3 Phillip Areeda & Herbert Hovenkamp, Antitrust Law ¶ 651c at 78 (1996). This would, of course, require consideration of the conduct's impact on the plaintiff's ability to compete and of the prospects of competition from other sources. Moreover, conduct is not deemed exclusionary for purposes of Section 2 of the Sherman Act unless it lacks a valid business purpose, i.e., it makes no business sense apart from its tendency to exclude and thereby create or maintain market power. E.g., Aspen, 472 U.S. at 608.
• Disputes over the terms on which a potential rival may obtain access to an incumbent local exchange carrier's network, whether or not they involve violations of the 1996 Act, will normally provide no basis for a finding of antitrust liability, provided the incumbent's conduct makes no significant contribution to maintenance of its monopoly. But if an incumbent engages in exclusionary conduct that effectively prevents the emergence of substantial competition, a dispute over terms of access may be part of a claim under Section 2.
• Although the district court noted the general principles governing Section 2 claims, the court failed to determine whether Covad's complaint, if read with the liberality appropriate when deciding a motion under Rule 12(b)(6), sufficiently alleged the elements of a Section 2 violation.(9) BellSouth argued that the alleged conduct "is competition on the merits," Reply at 9 -- or, at most, would violate obligations imposed only by the 1996 Act, see id. at 11-15. Covad asserted that the allegations were "more than sufficient to state a Section 2 claim under well-settled antitrust theories" based on antitrust obligations that "existed before the Telecom Act," and that are "irrespective of" although "made clearer by" the express language of that Act. Opp. at 17, 19.
• The district court never resolved this dispute as a matter of antitrust law. The court stated that Covad's allegations of exclusionary refusals to grant access to essential facilities "clearly represent affirmative duties which are above and beyond the requirements of the Sherman Act." Order at 24. Indeed, many of the detailed factual allegations in the complaint involve staples of 1996 Act controversy that have not been the basis of liability in antitrust cases. The United States and the FCC take no position on whether Covad's particular complaint sufficiently alleges a violation of Section 2 of the Sherman Act. Our point is that the district court's decision contains no careful analysis of the complaint in terms of what the Sherman Act does and does not require. Rather, it appears that the district court, relying on its reading of Goldwasser, conclusively and erroneously presumed that no conduct covered by the 1996 Act could also be subject to Section 2 of the Sherman Act.
Holding
The Court should reject any argument that the Telecommunications Act of 1996 creates implied antitrust immunity or otherwise precludes Sherman Act claims involving conduct also covered by the 1996 Act. Because the district court appears to have dismissed most of Covad's antitrust claims on such grounds, this Court should vacate the district court's order dismissing those antitrust claims and remand for further proceedings.
Clayton Antitrust Act
Clayton Antitrust Act, legislation passed by the United States Congress in 1914 to prohibit certain monopolistic practices that were then common in finance, industry, and trade (see Monopoly). Sponsored by the Alabama congressman Henry De Lamar Clayton, the Clayton Antitrust Act was adopted as an amendment to the Sherman Antitrust Act. Designed to deal with new monopolistic practices, the act contained three distinct types of provisions, covering corporate activities, remedies for reform, and labor disputes.
The provisions relating to corporate activities declared illegal such practices as local price-cutting to freeze out competitors, exclusive selling or leasing, and other forms of price discrimination. The law also forbade intercorporate stock holdings that allow one firm to gain control over another, thereby lessening competition, and certain interlocking directorates, in which a few persons control an industry by serving simultaneously as directors of related corporations.
The act permitted individual suits for damages from discrimination or exclusive selling or leasing, and made directors or officers of corporations responsible for infractions of the antitrust laws. Appeals were directed to the Federal Trade Commission, which was, in part, created to enforce the antitrust provisions of the act and which was empowered to issue cease-and-desist orders when illegal activities had been proved.
The act also affirmed the right of unions to strike, boycott, and picket. Its provisions dealing specifically with labor matters limited use of the federal injunction in labor disputes; at the same time, unions were explicitly excluded from the restrictions of antitrust laws. Unfavorable court interpretations weakened the act, however, and additional legislation was required finally to carry out its aims. www.encarta.msn.com.
Case: Statoilasa v. Heeremac V.O.F., ET AL.
Legal Issue
Whether federal courts have jurisdiction under the Sherman Act and the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA), 15 U.S.C. 1, 6a, over the claims of a foreign plaintiff that it has been injured by a conspiracy that has direct, substantial, and reasonably foreseeable anticompetitive effects on United States trade or commerce, if the foreign plaintiff's claimed injury does not arise from those domestic effects?
Facts
• In 1997, the United States uncovered a global price-fixing and market-allocation scheme in the heavy-lift marine construction services industry. Oil and gas companies engage heavy-lift marine construction firms to construct, install, move and remove offshore oil and gas production platforms, decks, and similar structures. Such firms use heavy-lift derrick barges, which are floating crane vessels able to lift loads exceeding 4,000 tons. Between 1993 and May 1997, respondents HeereMac, v.o.f., Saipem UK Limited, and McDermott, Inc., and their affiliates, controlled the world's supply of heavy-lift derrick barges.
• Those three companies are based in The Netherlands, the United Kingdom, and the United States, respectively. Id. at 5a n.2. In December 1997, the United States charged respondent HeereMac and one of its managing directors with participating in a conspiracy to rig bids for heavy-lift barge services in the United States and elsewhere, in violation of Section 1 of the Sherman Act. 15 U.S.C. 1. The corporation and individual pleaded guilty and agreed to pay fines of $49 million and $100,000, respectively.
• In December 1998, petitioner, an oil company owned by the government of Norway, brought suit seeking treble damages for overcharges it allegedly paid to respondents HeereMac and Saipem for heavy-lift barge services in the Norwegian sector of the North Sea. Pet. App. 7a; Pet. 4-5. Petitioner purchased no heavy-lift barge services in the United States, nor did it purchase any such service from McDermott, the only U.S.-based respondent. Rather, its contracts with HeereMac and Saipem were executed and performed abroad and did not specify that United States law applied to disputes arising under those contracts.
• The district court dismissed petitioner's suit on the ground that the alleged conspiracy to fix prices in the North Sea "did not have a direct, substantial, and reasonably foreseeable anticompetitive effect on United States trade or commerce," and thus that the court lacked subject matter jurisdiction under Section 6a(1) of the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA), 15 U.S.C. 6a(1)
• A divided panel of the Court of Appeals for the Fifth Circuit affirmed. Pet. App. 1a-22a. The court observed that the FTAIA extends the Sherman Act to non-import foreign conduct only when that conduct has "a direct, substantial, and reasonably foreseeable effect" on United States domestic commerce, 15 U.S.C. 6a(1), and "such effect gives rise to a claim," under the Sherman Act, 15 U.S.C. 6a(2). The court concluded that the alleged conspiracy had a sufficient effect on United States commerce within the meaning of Section 6a(1), because petitioner had alleged that "the conspiracy not only forced purchasers of heavy-lift services in the Gulf of Mexico to pay inflated prices, but also that the agreement compelled Americans to pay supra-competitive prices for oil." Pet. App. 13a-14a.
Rule of Law
THE ISSUE DECIDED BY THE COURT OF APPEALS IS NOT RIPE FOR THIS COURT'S REVIEW
Reasoning/Analysis
• Although the decision below is the first appellate decision to interpret Section 6a(2), with increasing frequency foreign plaintiffs have sued to recover damages arising out of foreign purchases of conspiratorially price-fixed items, when the conspiracy's conduct also affects United States commerce. To date, no district court that has considered the application of Section 6a(2) to such facts has embraced petitioner's reading of the Act.
• The Fifth Circuit's holding that a plaintiff's claim must derive from the conspiracy's effect on domestic commerce does not preclude the government from prosecuting violations of the Act by global cartels. District courts have jurisdiction over illegal foreign activity that has a "direct, substantial, and reasonably foreseeable effect" on domestic commerce. 15 U.S.C. 6a(1). When an international cartel's conduct as a whole has that effect, "such effect gives rise" to the United States' "claim" under the Act. 15 U.S.C. 6a(2); see also Pet. App. 21a (noting that global conspiracy that has the effect of raising prices in the United States gives rise to a government claim).
• Petitioner also errs in suggesting (Pet. 18-20) that the Fifth Circuit's decision may inappropriately reduce the size of fines the United States can recover under the Sentencing Guidelines, which instruct courts to use "20 percent of the volume of affected commerce" in establishing a Base Fine. Sentencing Guidelines § 2R1.1(d)(1). It is the policy of the United States to calculate the Base Fine by using only the domestic commerce affected by the illegal scheme, and in all but two of the dozens of international cartel cases prosecuted (see p. 10 & note 5, infra), fines obtained by the government were based solely on domestic commerce.
• In amending the Sherman Act in 1982, Congress in the FTAIA provided that the Sherman Act applies to import commerce, in a more limited way to United States export commerce, and to foreign conduct when "(1) such [foreign] conduct has a direct, substantial, and reasonably foreseeable effect * * * on [United States domestic commerce] * * * and (2) such effect gives rise to a claim" under the Sherman Act. 15 U.S.C. 6a. It is not disputed in this case that Section 6a confers subject matter jurisdiction over a plaintiff's claim that arises from an illegal conspiracy's anticompetitive effects on domestic commerce, whether the plaintiff is located here or abroad.
• The Fifth Circuit's decision also comports with principles of antitrust injury and standing that ensure that the antitrust laws redress only the type of injury that the laws were designed to prevent. By requiring that the effect on domestic commerce must "give[] rise to a claim,"
• Petitioner contends (Pet. 12-13) that the legislative history of Section 6a manifests a purpose to extend the jurisdictional reach of the Sherman Act to foreign injury with no connection to United States commerce. The House Report indicates, however, that Congress inserted Section 6a(2) merely to ensure that the covered foreign conduct must have an anticompetitive impact on domestic commerce to be actionable under the Sherman Act. H.R. Rep. No. 686, 97th Cong., 2d Sess. 11-12 (1982). Absent that subsection, the House Report explains, a plaintiff injured abroad might have been able to bring suit in federal court "merely by proving a beneficial effect within the United States, such as increased profitability of some other company or increased domestic employment."
• Petitioner also argues (Pet. 16-20) that its construction is necessary to ensure adequate deterrence of international cartels. The Fifth Circuit's holding, however, reads Section 6a broadly to extend to all plaintiffs (whether domestic or foreign) whose injuries arise from a conspiracy's anticompetitive effect on United States commerce. That holding does not undermine the Sherman Act's protection of United States consumers and commerce. Indeed, the legal landscape in recent years has changed significantly in response to the need to deter illegal cartels operating both here and abroad.

Holding
In sum, the court of appeals' decision does not conflict with any decision of this Court or of any other court of appeals. The decision will not impair the United States' ongoing efforts to enforce the Sherman Act against international cartels, and it is correct in its interpretation of the FTAIA. Moreover, because appeals raising basically the same legal question are currently pending in five other courts of appeals-whose decisions could provide further illumination-review by this Court would be premature at this time.

The Robinson-Patman Act
The Robinson-Patman Act (an amendment to another antitrust law, the Clayton Act), was enacted in large part to protect the so-called mom and pop grocery stores against the A&P company. A&P discovered that by purchasing in large quantities directly from the source, it could sell the food at a lower price. Given the obvious adverse effect on smaller grocers and wholesalers, they lobbied for a law and as a result, the Robinson-Patman Act was added to the Clayton Act.
While the Robinson-Patman Act contains several provisions, some dealing with illegal brokerage and discriminatory advertising or promotional allowances, the main thrust of the act is to make it illegal for a supplier to charge lower prices to certain customers simply because they purchase in larger quantities than other customers. This basic prohibition against price discrimination (as it is known) is contained in Section 2(a) of the Robinson-Patman Act (the Act). Section 2(a) contains the major substantive provisions of the Robinson-Patman Act.[36] Section 2(a) makes it unlawful "for any person engaged in commerce . . . to discriminate in price between different purchasers of commodities of like grade and quality" unless cost savings, meeting the competition, or changing conditions justifies the discrimination.[37] Price discrimination claims under section 2(a) involve allegations of either primary-line or secondary-line injury.[38] Where a plaintiff sues its competitor alleging that the competitor engaged in discriminatory pricing in the market in which the plaintiff and the defendant compete, the plaintiff alleges "primary-line" injury.[39] Where the plaintiff is a buyer suing its seller for differential pricing among sales to the buyer and the buyer's competitors, the plaintiff alleges a "secondary-line" injury.[40]
Courts require several jurisdictional elements to be met for section 2(a) to apply to a claim of illegal price discrimination.[41] A plaintiff must show that the defendant seller made: (1) at least two constrain ted sales,[42] (2) of commodities,[43] (3) of like grade and quality,[44] (4) at discriminatory prices,[45] (5) to different purchasers,[46] (6) that occurred "in commerce."[47]
Unlike the Sherman Act's commerce requirement, which is satisfied by showing any transaction "affecting" interstate commerce,[48] section 2(a)'s "in commerce" language is restrictively construed.[49] Section 2(a) includes four criteria that the plaintiff must satisfy to prove that the allegedly discriminatory sales occurred "in commerce." These include, that: (1) the defendant is "engaged in commerce," (2) the discrimination occurred "in the course of such commerce," (3) "either or any of the purchases involved in such discrimination are in commerce," and (4) the discrimination's effect may be "substantially to lessen competition or tend to create a monopoly in any line of commerce." The third criterion--that either of the purchases be "in commerce"--is determinative of jurisdiction, however, because if this is satisfied the other criteria will also be satisfied.[50] What "in commerce" means under section 2(a), however, and what factual circumstances satisfy it have generated substantial litigation.
Case: National Association of Recording Merchandisers, Inc., v. Sony Corporation of America and Sony Music Entertainment, Inc.
Legal Issue
1. Has NARM Stated a Section 1 Claim Related to Sony's Hyperlinks and Related Products and Services?
2. Has NARM Stated a Section 1 Tying Claim?
3. Has NARM Stated a Section 1 Reciprocal Dealing Claim?
4. Has NARM Stated a Section 1 Exclusive Dealing Claim?
Facts
• The National Association of Recording Merchandisers, Inc. ("NARM"), "a trade association whose general voting membership is made up of resellers of recorded music," (1) brought this action against Sony Corporation of America and its wholly owned subsidiary, Sony Music Entertainment, Inc. (collectively "Sony"), First Amended Complaint ¶¶ 17-18 ("Compl."), alleging, inter alia, violations of the federal antitrust laws.(2)

• Sony allegedly includes on its music CDs some material that, when the CD is used in a computer rather than an ordinary CD player, offers the user the opportunity to access Sony web sites on the Internet. Sony allegedly also includes "blow-in cards" -- printed advertising material -- in the package containing the CD.

• Sony Music Division is an unincorporated division of defendant Sony Music Entertainment, Inc. without separate legal identity, nor do we address the claims that do not arise under the federal antitrust laws.
Rule of Law
2. Robinson-Patman Act Section 2
3. Sherman Antitrust Act Section 1
Reasoning/Analysis
• A threshold requirement for invocation of the Robinson-Patman Act is the sale of commodities. Section 2(a) of the Act prohibits discrimination "in price between different purchasers of commodities of like grade and quality . . . where such commodities are sold for use, consumption, or resale." 15 U.S.C. 13(a). For the provision to apply, therefore, there must be at least two sales of "commodities." Commodities in this context means tangible products. See, e.g., Baum v. Investors Diversified Services, Inc., 409 F.2d 872, 875 (7th Cir. 1969) ("This court has indicated that the word 'commodity' as used in the [Robinson-Patman] Act is restricted to products, merchandise or other tangible goods."). Section 2 (d) prohibits a person from discriminating in making certain payments to one of its customers in connection with that customer's sale of "any products or commodities manufactured, sold, or offered for sale by such person." 15 U.S.C. 13(d). It thus also turns on sale (or manufacture) of "commodities." And Section 2(e) prohibits certain discrimination "in favor of one purchaser against another purchaser or purchasers of a commodity bought for resale," 15 U.S.C. 13(e); it likewise turns on sale of commodities. If Sony does not sell "commodities" to Columbia House, the Robinson-Patman Act does not prohibit the alleged discrimination.

• NARM's various filings suggest that Sony's inclusion of hyperlinks and other products and materials directed to the ultimate consumer in the music CDs that it sells to NARM retailers may be characterized as unlawful tying, exclusive dealing, or reciprocal dealing -- all well recognized categories of concerted action that may violate section 1 of the Sherman Act. NARM further contends that, whether or not Sony's conduct falls within those categories, it nonetheless constitutes an unreasonable restraint of trade in violation of section 1. We discuss each of those contentions separately.

• NARM correctly observes that "the issue in a rule of reason analysis under Section 1 of the Sherman Act is not what the conduct at issue is called." Supplemental Reply 1; see also NARM Mem. 20. An anticompetitive agreement that does not fit into any well-established category of concerted restrictive conduct -- such as tying, reciprocal dealing, or exclusive dealing -- may nonetheless violate section 1 of the Sherman Act. We have been unable, however, to discern in NARM's complaint allegations that both identify an agreement relating to the content of Sony's CDs and suggest a plausible theory of anticompetitive effect flowing from that agreement. • Court has focused on whether there is separate demand for the two items because the prohibition on tying stems from a concern with foreclosure of competition on the merits in the tied product, which can occur only if there can be such competition separate from competition in the tying product. Id. at 12-14, 19-22.(6) The tying arrangement results in the "abdication of the buyers' independent judgment as to the 'tied' product's merits and insulates it from the competitive stresses of the open market." Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 605 (1953).

• The NARM retailer's purchase of the extended CD is merely the first step in an extended chain of causation that may or may not lead to Sony receiving such information, depending on the actions of the customers: If the consumer puts an extended CD into the CD-ROM drive of a personal computer, rather than into a CD player, id. ¶¶ 32, 43, material including hyperlinks is presented to the user; the consumer may choose to activate the hyperlink, id. ¶¶ 43, 44, and if the consumer does so, Sony "solicits user information," id. ¶ 29, from the consumer, who then chooses whether to provide it.

Holding
NARM refers to the relationship between Sony and Columbia House as a "sham licensing arrangement." Compl. ¶ 140 (emphasis added). NARM alleges no facts, though, to suggest that the arrangement actually involves the sale of a commodity -- CDs -- to Columbia House rather than a licensing arrangement. In its filings, NARM suggests "a series of factual issues" relevant to "whether there has been a sale in contrast to a true license[:] who has title to the CDs, who bears the risk of loss, who has the responsibility of selling the CDs and maintaining customer satisfaction, and whether the arrangement is a pretextual attempt to circumvent the discriminatory price and promotional prohibitions of the Robinson-Patman Act." NARM Mem. 39 n.11. But, as to all but the last issue, NARM alleges no facts at all. As to the last issue, NARM alleges, in its brief if not in its complaint, that Sony designed the arrangements "solely to evade the prohibitions on price discrimination." NARM Mem. 39. The economic and legal substance of the arrangement control, however, not Sony's reason for choosing a particular kind of arrangement. The statute defines its prohibitions, and there is nothing improper in arranging one's affairs so as not to fall within the prohibition. We see nothing in the allegations of the complaint that, if proven, would require that the licenses be declared a sham.(21)
For the foregoing reasons, we believe that NARM's complaint fails to state a claim under Section 1 of the Sherman Act, and the Robinson-Patman Act does not apply to the transactions alleged.
Respectfully submitted.

References
August, R. (2000). International Business Law. (3rd ed). New Jersey. Prentice Hall.
Http://encarta.msn.com
Http://www.usdoj.gov/atr/index.html.
Http://www.businesslaws.com
Http://www.westbuslaw.com
COVAD Communications Co and DIECA Communications, Inc d/b/a COVAD Communications, Co., v. Bellsouth Corp. and Bellsouth Telecommunications, Inc.
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Statoil Asa v. Heeremac V.O.F., ET AL.
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