Answer of Case

7/29/2019 Answer of Case

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F inal Exam

Uni ted States Federal Government

V.

DENTSPLY I nternational, Inc.

Submitted to

Prof.Yassin Elshazly

Prepared by

Rania Gad


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International Business Law

2

Table of Content

Parties 3

Facts 3

Legalproblem 4

Applied rules 4

Analysis 5

Precedent 7

Court decision 8

conclusion 8


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Parties:

UNITED STATES Federal Government(Plaintiff)

V.

DENTSPLY INTERNATIONAL, INC.,Respondent

Facts:

1. This case involves the market for "prefabricated artificial teeth in theUnited States" for use in making dentures

2. The dealers supply the teeth to dental laboratories, which fabricatedentures for sale to dentists

3. Although of advances in dental medicine, the prefabricated artificial toothmarket had little or no growth potential

4. DENTSPLYs market share average 75%5. DENTSPLYs market share is approximately 15 times larger than its next

closest competitor

6. DENTSPLY distributes its teeth exclusively through a network of 23dealers

7. DENTSPLY dominates the industry8. There are hundreds of dealers who compete with each other on the basis of

price and service.

9. DENTSPLY prohibiting its dealers from adding competitive lines ofartificial teeth unless they were selling the teeth before 1993

10.Some manufacturers sell directly to laboratories.11.. The federal government filed a suit in a federal district court against

DENTSPLY, alleging, among other things, a violation of Section 2 of the

Sherman Act


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Legal problem

Was the defendants preventing its dealer from selling competitors productsrestraint of trade and harm the market? (a conducts lays under violation ofSherman act)

Was the defendants act violating of section 2 of the Sherman ActApplied ru les

1.Section 3 of the Clayton ActTYING AND EXCLUSIVE DEALING

Provides that: "It shall be unlawful to make a sale of goods on thecondition that the purchaser shall not use or deal in the goods of a

competitor where the effect may be to substantially lessen competition or

tend to create a monopoly...." This provision of the Clayton Act was

passed in response to the Supreme Court's decision in Henry v. A.B. Dick &

Co. (1912).

The other practice that section 3 of the Clayton Act occasionally condemnsis exclusive dealing, which occurs when a firm insists that retailers handle

its brand exclusively.In Standard Oil of California v. United States (1949), the

Supreme Court found it unlawful for Standard to require its gasoline stations to sell

Standard's gasoline exclusively.

2.Section 1 of the Sherman Act :prohibits any contract, combination, or

conspiracy, in restraint of trade.15 U.S.C. 1 (2007).This prohibition applies

only to agreements between firms and is primarily aimed at preventing

injury to competition from collusion-arrangements designed to eliminate

competition among competitors to their mutual benefit. Combating collusion

has long supplied the core of federal antitrust enforcement cases,(William E.

Kovacic, The Modern Evolution of U.S. Competition Policy Enforcement Norms, 71

ANTITRUST L J. 377, 415 (2003) (noting the primacy of section1enforcement), inpart because, as the Supreme Court has explained, concerted activity is

fraught with anticompetitive risks. Copper weld Corp. v. Independence Tube

Corp., 467 U.S. 752, 76869 (1984).


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3.Section 2 of the Sherman Act. (Sherman Act, 2, as amended, 15 U.S.C.A. 2)

Provides that every person who shall monopolize, or attempt tomonopolize, or combine or conspire with any other person to monopolize

any part of the trade is guilty of an offense and subject to penalties. In

addition, the Government may seek injunctive relief. 15 U.S.C. 4.

A violation of Section 2 consists of two elements:( elements which are thegovernment must show to succeed in its suit)

(1) Possession of monopoly power and

(2) maintenance of that poweras distinguished from growth or

development as a consequence of a superior product, business acumen, or

historic accident.United States v. Grinnell Corp., 384 U.S. 563, 570-71, 16 L. Ed. 2d

778, 86 S. Ct. 1698 (1966); see also Weiss v. York Hosp., 745 F.2d 786, 825 (3d Cir. 1984

Analysis

DENTSPLYs exclusivity policy, with respect to its restrictions on its dealers

product lines, violated Section 2 of the Sherman Act.

Monopoly Power

The relevant market:One of the first things that any court must do when dealing with a section 2

claims is to define the relevant market in which the defendant is engaged and

determine who the relevant consumers are.

a- The relevant market could likely include the market for the sale of teeth todealers and to laboratories, in part because, although DENTSPLY markets

its products through dealers, some manufacturer competitors sell directly to

laboratories.DENTSPLY might argue that a relevant market cannot include

both sales to a final consumer and a middle man, this argument is rejected.

citing to theAllen-Myland, Inc. v. IBM Corp.33 F.3d 194 (3d Cir. 1994) (holding that

the relevant market for IBM included sales directly to consumers as well as sales to

leasing companies that resold to consumers).

b- The dental laboratories were the relevant consumers. citing the fact thatlaboratories are the last to purchase the artificial teeth before they are turned

into other products, such as dentures


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Power to Exclude(1)As for monopoly power, DENTSPLYs 75%share of the market is more than

enough to establish a prima facie case of power, cited Fineman v. Armstrong World

Indus., 980 F.2d 171, 201 (3d Cir. 1992).( Absent other pertinent factors, a share significantlylarger than 55% has been required to established prima facie market power) . DENTSPLYmaintained this power and used it to adversely affect competition in the market by

precluding its dealers from handling its competitors teeth .The defendants actpreventing its dealer from selling other competitors product was designed to block

competitive distribution points, and to prevent giving the customer a choice

(2) Apparent lack of aggressiveness by competitors is a reflection of theeffectiveness of Dentsply's exclusionary policy so Dentsply did indeed have the

power to exclude competitors from the market &power to exclude competitorsfrom dealers was sufficient to show exclusionary power; exclusion from

laboratories was not necessary.

AntiCompetitive effect: the second element is willful maintenance.

Assessing anti-competitive effect is important in evaluating a challenge to aviolation of Section 2. Under that Section of the Sherman Act, it is not necessary

that all competition be removed from the market. The test is not total foreclosure,

but whether the challenged practices bar a substantial number of competitors orseverely restrict the markets ambit.Le Pages, 324 F.3d at 159-60; Microsoft, 253 F.3d

at 69

The impermeability of Dentsply's 75% market share, from 1993 to the present,was evidence of monopoly power maintenance, and the creation of artificially

imposed barriers to efficient scale entry by its smaller competitors

It is also noted that because of advances in dental medicine, the prefabricatedartificial tooth market had little or no growth potential. Thus, the static nature of

market share maintenance was an imposing element of Dentsply's ability to shape

the market to its liking.

In the Microsoft case the court of appeals adopted standard for determiningwhether conduct illegally foreclosed competition: The proper inquiry is not

whether direct sales enable a competitor to survive but ratherwhether direct

selling poses a real threat to defendants monopoly. Applying this standard,

concluding that the small market shares of Dentsplys competitors, which sold


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directly to dental labs, revealed that selling directly actually insufficient to pose

threat to Dentsplys dominant position.

The mere existence of other artificial teeth manufacturers that sold directly tolaboratories was insufficient to demonstrate direct sales as an effective means of

competition.

By ensuring that the key dealers offer Dentsply teeth either as the only ordominant choice, exclusivity policy has a significant effect in preserving

Dentsply's monopoly. It helps keep sales of competing teeth below the critical

level necessary for any competitor to pose a real threat to Dentsply's market

share. As such, exclusivity policy is a solid pillar of harm to competition.

LePage's, 324 F.3d 141, 159 (3d Cir. 2001)("When a monopolist's actions are designed to

prevent one or more new or potential competitors from gaining a foothold in the market byexclusionary, i.e. predatory conduct, its success in that goal is not only injurious to the

potential competitor but also to competitionin general.").

By prohibiting its dealers from adding competitive lines of artificial teeth,Dentsply was able to deny transaction cost efficiencies to its substantially smaller

competitors that could be derived from dealing through dental dealers.

A set of strategically planned exclusive dealing contracts may slow thecompetitors expansion by requiring it to develop alternative outlets for its

products or rely at least temporarily on inferior or more expensive outlets.

Consumer injury results from the delay that the dominant firm imposes on the

smaller competitors growth.Herbert Hovenkamp, Antitrust Law1802c, at 64 (2d ed.

2002).

Dentsply might argue that its sales to its dealers are a series of separatetransactions, terminable by any party at any time. But Dentsplys large market

share and its conduct make such arrangements as effective as if they are long-

term, binding contracts.

Precedent:

United States v. Microsoft Corp., 253 F.3d 34, 59-64, 67-77 (D.C. Cir. 2001)(en banc) (per curiam) (condemning various exclusionary contracts imposed by

Microsoft on software, hardware, and internet developers).In this case, after

concluding that Microsoft had monopoly power, the District Court held that

Microsoft had violated Sherman act 2 by engaging in a variety of exclusionary


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acts (not including predatory pricing), to maintain its monopoly by preventing the

effective distribution and use of products that might threaten that monopoly.

LePage's v. 3M, Conwood v. U.S. Tobacco reveal a common theme: Plaintiffswho can demonstrate that dominant firms' practices restrict access to significantportions of a relevant market, efficient distribution media, or scarce retail space

stand a reasonably good chance of prevailing under Section 2 of the Sherman Act

Courtdecision:

A court is not likely to find a sufficiently procompetitive justification for

DENTSPLYs policy. The court should rule that the firms restrictions on itsdealers product lines violate Section 2 of the Sherman Act.Dentsply International Inc. ("Dentsply") guilty of illegal monopoly power

maintenance

Conclusion:

The exclusive dealing policy implemented by DENTSPLY International

(DENTSPLY) is in violation of Sherman Act 2.The most significant aspect of

this decision was the holding that an exclusive dealing policy created by a company

with monopolypower could violate Section 2 even when the agreement was easily

terminable.


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