On February 4, 2016, the U.S. Court of Appeals for the Fourth Circuit affirmed a grant of summary judgment dismissing "per se" antitrust tying claims brought by a local concert promoter (It's My Party, or IMP) against its larger rival (Live Nation).1 IMP claimed that Live Nation was improperly requiring artists to perform at Live Nation's amphitheater in the Baltimore/DC area if the artists wanted Live Nation to promote them in other locations, especially where Live Nation controlled the only amphitheater. The U.S. District Court for the District of Maryland had rejected the plaintiff's claims, ruling that it failed to marshal sufficient factual support for its market definition or its assertion that Live Nation had engaged in the conditioning required for a tying claim, even though these two issues involve the kind of factual inquiries not suited for summary judgment. The case is important for its clear recognition of the value of vertical integration and synergies; it also highlights the growing judicial skepticism of the per se rule for tying: the court of appeals expounded at great length on the many procompetitive benefits that would be foregone if the challenged conduct could be shoehorned into a per se tying claim.
The Sherman Act § 1 offense of tying involves conditioning the sale of one product (the tying product) on the sale of a separate and distinct product (the tied product). Under decades-old precedents, a plaintiff alleging an unlawful tying arrangement need show only that: (1) the defendant linked two separate and distinct product markets; (2) the defendant conditioned the sale of one product on the purchasing of a different, "tied" product; (3) the seller possessed sufficient market power in the tying product; and (4) the tying arrangement affected a "not insubstantial" amount of commerce in the tied product market. Tying was traditionally considered a "per se" violation by allowing the competitive harm in the tied market to be presumed when a seller with market power in the tying product market conditioned that sale on the purchase of the tied product. That the "tie" in question may be procompetitive in the circumstances of the case, or that there is no actual adverse impact in the tied product market, did not rebut the presumption of illegality under these older precedents.
The plaintiff, IMP, is a concert promoter operating in the Baltimore/DC area. The defendant, Live Nation, is a concert promoter operating in many cities across the country, including Baltimore/DC. Both IMP and Live Nation also operate venues. The venues germane to this case are amphitheaters, which are outdoor venues built primarily for concerts that seat around 20,000 through a combination of fixed and lawn seating. In the Baltimore/DC area, the plaintiff operates the Merriweather Post Pavilion (MPP) and the defendant operates the Jiffy Lube Amphitheatre (formerly known as the Nissan Pavilion). Live Nation also operates amphitheaters in most of the other major cities in the United States.
IMP's basic complaint was that Live Nation's promotion operations in locations outside Baltimore/DC and its control of most of the amphitheater venues in the United States put IMP at a disadvantage in attracting artists to MPP. IMP articulated this complaint in the form of a per se tying claim: Live Nation (1) had the requisite market power in a "national promotion market" and in a number of local "amphitheater-only venue markets" and (2) would not provide its services in these "markets" unless the artist played the Nissan Pavilion on the Baltimore/DC stop on a tour.
The court of appeals affirmed the summary judgment ruling that IMP had failed to raise an issue of material fact on the question of "conditioning." In no instance did the "cherry-picked" emails and other communications from a small number of negotiations suggest that Live Nation conveyed that any artist must play Nissan in order to obtain Live Nation's promotion or venue services elsewhere. Moreover, even among the artists that IMP identified as most susceptible to Live Nation's power, there was a significant percentage that nevertheless played MPP, negating any inference of improper conditioning.
IMP still claimed a tying violation, arguing that a plaintiff need not show coercion to establish the conditioning necessary for a tying claim. IMP argued that tying occurs any time a seller who has market power over product A offers it for sale together with product B. The court of appeals rejected this argument, affirming that coercion is required for there to be a tie: "But merely offering two products in a single package, allowing each to enhance the appeal of the other, is not itself coercive. Otherwise, the seller would be guilty of anticompetitive conduct even if buyers in fact preferred and freely chose to buy product A and product B together and competitors were not foreclosed from selling alternatives to product B." In rejecting IMP's argument, the court of appeals expounded on the many potential benefits of packaging complementary products, analogizing the practice to vertical integration, which has "generally been permitted despite its apparent similarity to tying." The court held that where circumstantial evidence of coercion is being offered, the plaintiff has an obligation to rule out the various procompetitive reasons that customers might accept the packaged sale in order to defeat a motion for summary judgment.
Most per se offenses involve coordination by competitors that harms customers (e.g., price fixing). On the other hand, tying is a per se offense that permits one competitor to challenge the relations another competitor has with its customers. Because tying does not require proof of significant market foreclosure in the tied product market, it is an attractive claim for a competitor to use as a weapon against a more successful rival, especially if the hurdle to defeat the defendant's summary judgment motion is low. Recognizing this problem, the court of appeals concluded its opinion by highlighting the potential for "anticompetitive effects and consequences that can ironically arise from antitrust lawsuits." The court's willingness to grant summary judgment on the fact-intensive market definition question and its disquisition on the benefits of bundling complementary products seem to strike a blow to the heart of tying's per se treatment. This opinion gives district court judges a basis to consider the benefits of an alleged tying practice and to reject untenable market definition allegations before permitting a plaintiff to defeat summary judgment on a per se tying claim. As the court of appeals stated, "To help prevent antitrust law from being hijacked for such anticompetitive ends, we join the district court in sending this tussle between two rivals back to the marketplace from whence it came."
