Tradeshows and Exhibitions | Sherman Antitrust Considerations

Overview

The antitrust laws provide no bright-line rules about what particular analysis will apply for the exclusion of a participant from an exhibition marketplace, although likely, the Rule of Reason applies. In any instance, the pro-competitive reasons and anti-competitive effects of an exclusion of a company from a tradeshow should be considered and, in a best-case scenario, developed.

Based on the instruction and tone of most judicial opinions on this subject, a challenge to the refusal of exhibitor privileges will more likely than not be reviewed under the Rule of Reason analysis (rather than a per se antitrust violation). Both of these are discussed in this Insights blog.

Under the Rule of Reason, an excluding company will likely be required to offer evidence of the pro-competitive effects and reasons behind the decision and those effects must outweigh any anti-competitive effects that result from the decision.

On the other hand, if a company proves that an entity hosting an exhibition excluded the company based on, for example, price fixing or capricious, rather than commercially reasonable reasons, then the per se rule could and may well apply, and in that event, the likelihood for antitrust liability may increase.

Another commonly-asserted theory of liability in this arena is the essential facilities doctrine. Under this theory, per se treatment of conduct that is not necessarily anticompetitive may be warranted if the defendant-tradeshow possesses market power or exclusive access to facility necessary to compete. Elements of this theory are: (1) control of the essential facility by a monopolist; (2) a competitor’s inability to duplicate the facility; (3) denial of the use of the facility to a competitor; and (3) the feasibility of providing the facility.

SECTION 1 OF THE SHERMAN ACT

A. Text of the Statute and Essential Elements.

The Sherman Act provides that every contract, combination or conspiracy, in restraint of trade or commerce is illegal. A successful claim under Section 1 of the Sherman Act requires essentially proof of three elements: (1) a contract, combination, or conspiracy (2) that produced some anti-competitive effect (3) in the relevant market. See 15 U.S.C. § 1.

In general, the actions of trade and professional associations satisfy the first element—contract, combination or conspiracy—because the associations are comprised of competitors, and courts have consistently held that the actions of organizations controlled by entities that compete with one another result from concerted action.

Jumping to the third element—the relevant market, the products or services and geographic area affected by the alleged violation constitute the relevant market in which to assess the challenged conduct’s effect on competition. The purpose for defining the relevant market is to identify significant competitors of the entity in question—i.e., the organizations that can constrain the entity’s ability to exercise market power.

The second element of the test—an unreasonable restraint of trade—is the focal point of most litigation and governmental enforcement action. While Section 1 of the Sherman Act literally prohibits every conspiracy in restraint of trade, the second element of the test requires proof that the concerted action unreasonably restrained competition. There are two standards for evaluating whether an alleged restraint of trade is unreasonable, i.e., whether its anticompetitive effects outweigh its procompetitive effects: the per se rule and the Rule of Reason.

The applicable standard depends on the nature and character of the restraint. While a court’s determination of which particular standard applies may involve fact questions, the selection of a mode of analysis is entirely a question of law for the court to decide.

B. The Per Se Rule.

“Some types of restraints . . . have such predictable and pernicious anticompetitive effect, and such limited potential for precompetitive benefit, that they are deemed unlawful per se.” State Oil v. Khan, 522 U.S. 3, 10 (1997). “The per se rule, treating categories of restraints as necessarily illegal, eliminates the need to study the reasonableness of an individual restraint in light of the real market forces at work.” Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007).  However, the per se rule is confined to restraints “that would always or almost always tend to restrict competition and decrease output.” Id. (quoting Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 50 (1977) and Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 289 (1985). “To justify a per se prohibition a restraint must have manifestly anticompetitive effects, . . . and lack any redeeming virtue.” Id. (quoting Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 50 (1977) and Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 289 (1985).

Additionally, the per se rule is usually applied to restraints of trade that courts have had considerable judicial experience. Stated another way, the per se rule is appropriate only if courts can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason. Courts refer to these types of restraints as naked (hello!) because there are no plausible efficiencies that result from them. On the contrary, the per se rule is usually inapplicable to ancillary restraints, i.e., restraints that are part of a larger endeavor and that are necessary for it to achieve its efficiency-enhancing benefits.

If the per se rule applies, a plaintiff need not prove that the agreement had any actual anticompetitive effect, and the defendants are not permitted to introduce evidence that the restraint had procompetitive effects or no effects on competition at all. Rather, the per se rule establishes a conclusive presumption of unreasonableness and thus unlawfulness. To prove liability, a plaintiff only need prove the agreement and that it is a type to which the per se rule applies.

C. The Rule of Reason

There is a presumption that the Rule of Reason, rather than the per se standard, applies in assessing whether a practice restrains trade in violation of Section 1 of the Sherman Act. “Under the Rule of Reason, the courts weigh all of the circumstances of a case in deciding whether the restrictive practice should be prohibited as imposing an unreasonable restraint on competition.” Leegin Creative, 551 U.S. at 885. The rule of reason analysis includes the following factors:

1. 1. whether the restraint results in the defendants’ obtaining or maintaining market power;
   2. specific information about the relevant business; and
   3. the restraint’s history, nature, and effect.

Ultimately, “the rule distinguishes between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest.” Id. at 886.  In applying the rule of reason analysis, courts use a burden shifting framework. One federal appellate court explained this approach as follows:

Under the rule of reason, Sherman Act plaintiffs bear an initial burden to demonstrate the defendants’ challenged behavior had an actual adverse effect on competition as a whole in the relevant market; if the plaintiffs satisfy their initial burden, the burden shifts to the defendants to offer evidence of the procompetitive effects of their agreement, and if the defendants can provide such proof, the burden shifts back to the plaintiffs to prove that any legitimate competitive benefits offered by defendants could have been achieved through less restrictive means. . . . Ultimately, the factfinder must engage in a careful weighing of the competitive effects of the agreement—both pro and con—to determine if the effects of the challenged restraint tend to promote or destroy competition.

Geneva Pharms. Tech. Corp. v. Barr Labs, 386 F.3d 485, 507 (2nd Cir. 2004) (emphasis added); see also Gregory v. Fort Bridger Rendezvous Ass’n, 448 F.3d 1195, 1205 (10th Cir. 2006).

D. Judicial Opinions and the Unreasonable Restraint of Trade at Trade Shows.

1. 1. 1. Gregory v. Fort Bridger Rendezvous Association.

In this case, the court declined to apply the per se rule to a would-be exhibitor’s exclusion claim. The Fort Bridger Rendezvous Association (“FBRA”) organized an annual historical reenactment, the Rendezvous, at which vendors sold replica of pre-1840 goods. The plaintiffs, who had sold historical replica goods at the Rendezvous for many years, alleged that FBRA’s rejection of their application for exhibit space at the 2002 Rendezvous constituted an illegal group boycott under Sections 1 and 2 of the Sherman Act. The plaintiffs argued that their exclusion from the Rendezvous was illegal per se because (1) the FBRA’s action in excluding them was a horizontal group boycott (i.e., a concerted refusal to deal) and (2) the event was an essential facility without which the excluded organization could not compete.

Regarding the claim that the alleged horizontal group boycott claim was illegal per se, the court found that the plaintiffs failed to show that FBRA’s conduct was manifestly anticompetitive. FBRA had the right to determine which applicants to accept since more traders apply to sell products than space permitted.

Additionally, “the denial of an application is not ordinarily likely to result in predominantly anticompetitive effects because the denial of one trader’s application opens the market to another competitor.” Gregory, 448 F.3d at 1204. Further, there was evidence that other traders were denied space for reasons other than anticompetitive purposes (e.g., vendors failed to dress in time-period attire or they sold goods that did not comport with pre-1840 standards). Based on these findings, the court stated that “[t]he act of denying a trader space at the Rendezvous therefore does not necessarily imply anticompetitive animus and thereby raise a probability of anticompetitive effect.” Id. (citing Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 296 (1985)).

Regarding the plaintiffs’ secondary argument for per se treatment, the court recognized that “per se treatment of conduct that is not necessarily anticompetitive may be warranted if the association possesses market power or exclusive access to facility necessary to compete.” Id. (emphasis added) (citing Nw. Wholesale, 472 U.S. at 296).The court noted that in order for antitrust liability to be established under the essential facilities doctrine, the plaintiff must demonstrate four elements:

1. Control of the essential facility by a monopolist;
2. A competitor’s inability to duplicate the facility;
3. Denial of the use of the facility to a competitor; and
4. The feasibility of providing the facility.

The court declined to address this argument because the plaintiffs failed to brief the elements. Still, the court noted that the essential facilities doctrine was inapplicable since the plaintiffs sold many of the same goods at another venue that was immediately adjacent to the Rendezvous.

Applying the rule of reason analysis, the court considered the FBRA’s conduct in light of its effect on consumers and not competitors. The court found that once the plaintiffs’ application was denied, one or two other traders were permitted space to sell goods. Thus, the court held that the challenged exclusion “amount[ed] to a reshuffling of competitors with no detrimental effect on competition,” and thus it was not an unreasonable restraint of trade. Id. at 1205–06.

The court then denied the plaintiffs’ conspiracy to monopolize claim under Section 2 of the Sherman Act because restraints that do not harm competitive process (i.e., Section 1 claims) do not amount to a conspiracy to monopolize.

1. 2. Family Boating Center, Inc. v. Washington Area Marine Dealers Association.

In this case, the plaintiff alleged a per se illegal group boycott after being excluded from a small boat show. The plaintiff claimed that the defendants, who were competitors of plaintiff, were the ones who refused to sell it exhibition space.

As evidence of the group boycott’s anti-competitive effect, the plaintiff alleged the following: (1) that the show would be attended by 40,000-80,000 people; (2) that there was no alternative substitute available to plaintiff to exhibit; and (3) that plaintiff would lose gross sales of $600,000 and net profits of $150,000 if it was not allowed to exhibit.

The defendants presented the following evidence: (1) the actual attendance was only 6,757; (2) over half of the exhibition space was for recreational vehicles, which do not compete with plaintiff; and (3) one of the plaintiff’s competitors sold only three boats because of the show and netted approximately $5,000 in profits. The defendants asserted that the show was too small to enable the plaintiff to establish any anticompetitive effect resulting from plaintiff’s exclusion from the show.

While the court noted that the defendants’ action may literally seem to constitute a group boycott, the court required an initial inquiry to determine whether the defendants’ “practice facially appears to be one that would always or almost always tend to restrict competition and decrease output.” Family Boating Ctr., Inc. v. Washington Area Marine Dealers Ass’n, Inc., 1982 WL 1815, at *3 (D.D.C. Feb. 23, 1982).  The court stated that the scope of this inquiry was not as broad as the rule of reason, but was still necessary. The court then granted the parties sixty additional days to take discovery and develop the record as to the issue of anti-competitive effect.

After the additional discovery period, the defendants presented the following evidence: (1) that there were a significant number of boat shows held each year in the area; (2) that the plaintiff exhibited at two boat shows in the area just before the show in dispute; and (3) that plaintiff also exhibits boats at various shopping center shows in the area.

Based on the record before it, the court stated that it was “almost impossible to imagine that this one, small, isolated boat show, and plaintiff’s absence from it, could have any significant effect whatsoever on the competition among boat dealers in this area.” Id. at *4 (emphasis in original). The court further stated that neither the defendants nor the show possessed the requisite market power to significantly affect the competition in the industry (i.e., they do not possess an essential facility). Therefore, the court declined to apply the per se rule and granted summary judgment for the defendants.

1. 3. Denny’s Marina, Inc. v. Renfro Productions, Inc.

In this case, the court reversed a lower court’s refusal to apply the per se rule to a horizontal conspiracy among various defendants to exclude the plaintiff from participating in various boat shows.  See Denny’s Marina, Inc. v. Renfro Productions, Inc., 8 F.3d 1217, 1219-1221 (7th Cir. 1993).

The lower court based its refusal on the fact that the plaintiff regularly undersold its competitors and that the plaintiff had not shown a particular potential for impact on the market. In support of its holding, the lower court relied on Family Boating Center, Inc. v. Washington Area Marine Dealers Association (discussed above). The higher court (Court of Appeals for the Seventh Circuit) disagreed with the reasoning of Family Boating and chose not to follow it. Instead, the court asserted that the defendant’s concerted actions constituted a horizontal price-fixing conspiracy, which is illegal per se without requiring a showing of actual of likely impact on a market.

E. Horizontal Group Boycotts or Concerted Refusals to Deal.

A group boycott or concerted refusal to deal (the terms are usually used interchangeably) is generally an agreement among competitors not to deal with another competitor or not to deal with customers or suppliers who deal with a competitor. “Most often, group boycotts involve horizontal agreements among direct competitors with the aim of injuring a rival.” SD3, LLC v. Black & Decker (U.S.), Inc., 801 F.3d 412, 426 (4th Cir. 2015) (emphasis added).

In Northwest Wholesale Stationers, Inc. v. Pacific Stationary & Printing Co., the Supreme Court examined “when per se antitrust analysis is appropriately applied to joint activity that is susceptible of being characterized as a concerted refusal to deal.” Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 286 (1985). “The mere allegation of a concerted refusal to deal does not suffice [to state a per se violation] because not all concerted refusals to deal are predominately anticompetitive.” Id. at 298. The Court then stated that, for the per se rule to apply to a group boycott claim, the plaintiff must show, at a minimum, that the boycotting parties have market power or access to some trade relationship needed by competitors to compete effectively.

F. American Bar Association Guidelines for Restrictions on Participation in Trade Shows.

The American Bar Association’s Antitrust and Associations Handbook presented the following exclusion criteria or considerations:

1. Seek to accommodate all potential exhibitors that meet objective criteria for exhibiting.
2. Exclude exhibitors only where they fail to meet reasonable criteria for exhibiting that are imposed on all exhibitors, or where there is limited space at the trade show.
3. Make space allocation decisions on a reasonable, objective basis.
4. Charge exhibitor fees on a reasonable basis (consider use of tiered charge rates where the market includes small and large companies).
5. Do not base decisions to exclude exhibitors on whether the exhibitor engages in competitive business practices or pricing.
6. Avoid making decisions to exclude exhibitors based on subjective factors such as poor reputation in the industry.
7. Do not seek to influence members’ decisions about whether to participate at competing trade shows, including conditioning participation at the trade association’s trade show on an agreement not to participate in competing trade shows.

American Bar Association, Antitrust and Associations Handbook 75 (12th ed. 2010).

In an article written by Jerald Jacobs, general counsel for the American Society of Association Executives, the following seven guidelines are offered for evaluating and developing tradeshow restrictions:

1. Is the association’s trade show the sole, or one of only a few, trade shows existing in the industry or profession?
2. Have competing firms urged exclusion or expulsion of competitors?
3. Are there legitimate reasons for the exclusion, unrelated to the excluded firm’s competitive position?
4. Are the restrictions tailored narrowly to meet the Association’s needs?
5. Is access to the trade show linked to association’s membership?
6. Are there fair procedures for dealing with complaints and protests?
7. Are the criteria for gaining access objective, clear, and non-arbitrary?

See Jerald A. Jacobs, Trade Show Restrictions and Antitrust Liability, Association Counsel, Vol 3, No. 1, Spring 1986, at 1.

SECTION 2 OF THE SHERMAN ACT

A. Text of the Statute and the Three Distinct Violations.

Section 2 of the Sherman Act states that “[e]very person who shall monopolize, attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States . . . shall be deemed guilty of a felony.” See 15 U.S.C. § 2. Thus, Section 2 includes three distinct violations: (1) monopolization, (2) attempted monopolization, and (3) conspiracies to monopolize.

B. Monopolization.

The elements of monopolization are: (1) monopoly power; and (2) willful acquisition or maintenance of that power as distinguished from growth resulting from a superior product, business acumen, or historic accident.

Monopoly power is defined as “the power to control prices or exclude competition.” United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956). Determination of monopoly power requires an analysis of (1) the relevant market and (2) market share. While a market share of “[ninety percent] is enough to constitute a monopoly; it is doubtful whether sixty or sixty-four percent would be enough; and certainly thirty-three per cent is not.” United States v. Aluminum Co. of America, 148 F.2d 416, 424 (2d Cir. 1945). To establish the second element of this violation, a plaintiff must prove that the defendant acquired or maintained its monopoly power by competitive inappropriate conduct, i.e., predatory or exclusionary acts or practices.

The Supreme Court defined exclusionary acts as “behavior that not only (1) tends to impair the opportunities of rivals, but also (2) either does not further competition on the merits or does so in an unnecessarily restrictive way.” Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 n.32 (1985) (quoting 3 P. Areeda & D. Turner, Antitrust Law 78 (1978).  One type of conduct by a firm with substantial market power that may constitute predatory conduct is the refusal to deal with competitors. Still, as a general principle, even a firm with monopoly power has no duty to deal with or otherwise aid its competitors. Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004). But that right to refuse to deal is not unqualified. One variant of the refusal to deal theory is the essential facilities doctrine, which will be discussed in its own section below.

C. Attempted Monopolization.

The elements of attempted monopolization are: (1) specific intent to monopolize; (2) predatory conduct implementing that intent; and (3) a dangerous probability of actual monopolization if the predatory conduct continues. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Specific intent means “a specific intent to destroy competition or build monopoly.” Times-Picayune Publ’g Co. v. United States, 345 U.S. 594, 626 (1953). However, specific intent is difficult to prove because the evidence is often ambiguous since almost every firm wants to monopolize its market. The meaning and types of predatory conduct for purposes of attempted monopolization claims are the same as for monopolization claims, which were discussed above.

Even if the first two elements are satisfied, no attempted monopolization violation results if it could not actually monopolize the market. The third element is examined by reference to the offender’s share of the relevant market and should be evaluated as of when the alleged anticompetitive events occurred. See HDC Med., Inc. v. Minntech Corp., 474 F.3d 543, 550 (8th Cir. 2007).

D. Conspiracies to Monopolize.

The elements of conspiracies to monopolize are: (1) specific intent to monopolize; (2) the existence of a combination or conspiracy to achieve that end; (3) overt acts in furtherance of the conspiracy; and (4) an effect upon a substantial amount of interstate commerce. See Stewart Glass & Mirror, Inc. v. U.S. Auto Glass Discount Ctrs., Inc., 200 F.3d 307, 316 (5th Cir. 2000) (citing United States v. Yellow Cab Co., 332 U.S. 218 (1947)) (string cite omitted). Conspiracy-to-monopolize claims are largely redundant to Section 1 claims.

E. Essential Facilities Doctrine.

The essential facilities doctrine is not an independent cause of action. Rather, it is tied to a claim of monopoly. See Robert Pitofsky et al., The Essential Facilities Doctrine Under United States Antitrust Law, 70 Antitrust L.J. 443, 448 (2002). Courts have found the doctrine applicable where one firm uses its control of a facility to eliminate actual or potential competitors.

But, the doctrine has limitations on its applicability. The essential facilities doctrine is applied cautiously because the doctrine represents a departure from the general rule that even a monopolist may choose with whom to deal. See id. To establish antitrust liability under the essential facilities doctrine, a party must prove four factors: “(1) control of the essential facility by a monopolist; (2) a competitor’s inability practically or reasonably to duplicate the essential facility; (3) the denial of the use of the facility to a competitor; and (4) the feasibility of providing the facility to competitors.” Gregory v. Fort Bridger Rendezvous Ass’n, 448 F.3d 1195, 1204 (10th Cir. 2006).

Still, “[c]ourts rarely impose liability under the essential facilities doctrine, in large part because the doctrine requires a showing that the facility controlled by the defendant firm is truly essential to competition—i.e.,  constitutes an input without which a firm cannot compete with the monopolist.” Pitofsky, supra, at 449. The Supreme Court has not adopted the doctrine, but it is a legal theory included in just about every lawsuit involving exclusion from a tradeshow. Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 411 (2004) (“We have never recognized such a doctrine . . . .”).