Tenth Circuit Clarifies Rule of Reason Analysis for Tying Claims
Tying is a chameleon in antitrust law. Courts can condemn tying arrangements as either per se violations or as unlawful under the rule of reason. For a per se tying violation, plaintiff must show that the defendant had economic power in the market for the tying item sufficient to enable it to restrain trade in the tied product market. But a rule of reason analysis also requires consideration of the defendant’s economic power in the tying market, since a seller with no power whatsoever will not be able to coerce purchasers to buy the tied product. Thus, in tying cases, the per se and rule of reason analyses tend to bleed together, leaving courts and litigants without a clear analytical pathway.
The Tenth Circuit’s recent decision in Suture Express, Inc. v. Owens & Minor Distrib., No. 16-3065, 2017 U.S. App. LEXIS 4431, at *1 (10th Cir. Mar. 14, 2017), significantly clarifies the law in this area. Recognizing the paucity of case law on the appropriate rule of reason analysis in tying cases, Suture Express draws a roadmap for applying the rule of reason to tying arrangements.
The plaintiff, Suture Express, is a specialty distributor of sutures and endomechanical supplies (“suture-endo” products). Suture Express sued Cardinal Health 200, LLC (“Cardinal”) and Owens & Minor Distribution, Inc. (“O&M”), national distributors that sell a variety of medical and surgical products in addition to suture-endo products. Unlike Cardinal and O&M, Suture Express sells only suture-endo products.
In response to Suture Express’s growth, Cardinal and O&M adopted bundling provisions that required a customer to pay a premium for all medical products unless the customer agreed to purchase its suture-endo supplies from Cardinal/O&M. Even though Suture Express charged less for its suture-endo products than Cardinal or O&M, these bundling provisions resulted in customers paying more overall if they ordered suture-endo products separately through Suture Express than if they ordered everything through Cardinal/O&M. Suture Express alleged these bundling provisions amounted to unlawful tying arrangements under state and federal law.
The district court granted summary judgment to the defendants. On appeal, Tenth Circuit affirmed.
The district court had ruled that Suture Express could not establish a per se tying violation (i.e., that Cardinal and O&M possessed market power) and thus that rule of reason analysis was needed. The Tenth Circuit observed the available case law on tying claims under the rule of reason to be “amazingly sparse.” Yet because both the per se and rule or reason analyses involve consideration of the real market conditions and the defendant’s economic power in that market, the Court concluded that the per se and rule of reason analyses should be “mainly different in degree, not necessarily in kind.”
The Tenth Circuit observed a few distinctions between the two analyses. First, “the rule of reason is more receptive to procompetitive justifications for the tying arrangement and more willing to examine the effects of that arrangement in both the tying and tied markets.” Additionally, similar to other varieties of antitrust cases, application of the rule of reason in a tying case involves burden shifting: once the plaintiff makes a prima facie showing of adverse effect on competition, the defendant must show a procompetitive justification, after which the burden shifts back to the plaintiff to rebut the defendant’s justification.
The Tenth Circuit held that the rule of reason in a tying case requires an evaluation of market power similar to that of a per se analysis. While acknowledging that most cases discussing the analysis of market power for tying claims are per se cases, the Court saw “no reason why the same theoretical underpinning would not make the inquiry relevant under a rule of reason analysis.” The Court held that, in addition to market power, rule of reason analysis in a tying case requires assessment of antitrust injury, pro-competitive justifications, and the overall market effects of the bundle.
Applying this analysis, the Tenth Circuit found persuasive evidence that Cardinal and O&M did not possess the requisite market power to make the bundle anticompetitive. It further found that Suture Express could not meet its burden of showing antitrust injury because it had only alleged injury to itself, not injury to competition in general. Accordingly, the Court concluded that the district court was correct to grant summary judgment to the defendants.
Suture Express is a noteworthy contribution to the rule of reason case law on tying claims, illustrating that per se and rule of reason tying cases exist on a continuum. The decision merits attention from practitioners and courts wrestling with tying arrangements.