Drafting Standards

the manufacturer’s exclusive distribution agreements foreclosed competition in a substantial share of the relevant market.

II.     LEGAL STANDARD

        Section 1 of the Sherman Act prohibits “[e]very contract, combination . . . , or conspiracy, in restraint of trade or commerce among the several States.” 15 U.S.C. § 1. An exclusive dealing arrangement does not constitute a per se violation of the antitrust laws; rather, it is “judged under the rule of reason.” ZF Meritor LLC v. Eaton Corp., 696 F.3d 254 (3d Cir. 2012); Eisai, Inc. v. Sanofi Aventis U.S., LLC, 821 F.3d 394 (3d Cir. 2016).

        Under the rule of reason, an exclusive dealing arrangement is unlawful “only if the ‘probable effect’ of the arrangement is to substantially lessen competition, rather than merely disadvantage rivals.” Eisai, 821 F.3d at 403. The legality of such an arrangement “depends on whether it will foreclose competition in such a substantial share of the relevant market so as to adversely affect competition.” ZF Meritor, 696 F.3d at 271. The seminal framework was established by the Supreme Court in Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961), which requires a court to “weigh the probable effect of the contract on the relevant area of effective competition, taking into account the relative strength of the parties, the proportionate volume of commerce involved in relation to the total volume of commerce in the relevant market area, and the probable immediate and future effects which pre-emption of that share of the market might have on effective competition therein.” Id. at 329.

        While there is “no set formula” for this evaluation, modern antitrust law generally requires “a showing of significant market power by the defendant, . . . substantial foreclosure, . . . contracts of sufficient duration to prevent meaningful competition by rivals, . . . and an analysis of likely or actual anticompetitive effects considered in light of any procompetitive effects.” ZF Meritor, 696 F.3d at 271. To demonstrate substantial foreclosure, a plaintiff “must both define the relevant market and prove the degree of foreclosure.” Eisai, 821 F.3d at 403. Although “[t]he test is not total foreclosure,” the challenged practices must “bar a substantial number of rivals or severely restrict the market’s ambit.” Id..

ARGUMENT

I. Defendant’s Exclusive Distribution Agreements Foreclosed a Substantial Share of the Relevant Market