INTERNET LAW - Monopoly Claims against E-commerce Businesses

Martha L. Arias, Immigration and Internet Law Attorney, Miami; IBLS Director
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The United States (US) has strong antimonopoly laws that are currently being applied to e-commerce cases. Most of these claims, though, have not succeeded but it is definitely interesting to see how the antimonopoly area of law applies to the cyber world. The Medical Supply Chain, Inc. v. GE case is presented in this article as an example of this topic.

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The United States (US) has strong antimonopoly laws that are currently being applied to e-commerce cases.  Most of these claims, though, have not succeeded but it is definitely interesting to see how the antimonopoly area of law applies to the cyber world. The Medical Supply Chain, Inc. v. GE case is presented in this article as an example of this topic.

The Sherman Antitrust Act, 15 U.S.C. §1-7, is the US federal legal framework that limits cartels and monopolies.  Under this Act, it is illegal to restrain trade or commerce among US states or foreign countries through contracts, trusts, or any other similar acts (15 U.S.C. §1).  Further, the Act makes it a felony the act of monopolize, attempt to monopolize, or both or conspire to monopolize any part of the trade or commerce among the US states or foreign nations (15 U.S.C. §2). Under the Clayton Act, a federal law complementing the Sherman Act, private parties injured by antitrust laws violations can file lawsuits before US District Courts and request damages as relief, including reasonable attorney fees.  

There are statutory principles to determine whether a company is monopolizing or attempting to monopolize a specific market.  Under 15 U.S.C.S. § 2, a monopolization claim must allege (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.  Also, an attempt to monopolize claim must state (1) relevant market (including geographic market and relevant product market); (2) dangerous probability of success in monopolizing the relevant market; (3) specific intent to monopolize; and (4) conduct in furtherance of such an attempt.

Medical Supply Chain, Inc. v. GE, a case decided by the US Court of Appeals for the 10th Circuit, Medical Supply Chain, Inc., the plaintiff, alleged that General Electric, the defendant, violated federal antitrust provisions and other state laws. Plaintiff sought to establish an e-commerce marketplace for suppliers and buyers of hospital supplies.  Even though there were already e-commerce businesses offering these services, plaintiff expected a competitive advantage over the existing e-commerce businesses.  Health Exchange L.L.C. ("GHX") and Neoforma, Inc., the record shows, were the major players of e-commerce businesses for medical supplies, controlling 80% of the North American market.  The defendant, GE, is a founding shareholder of GHX.  Plaintiff alleged that GHX and Neoforma Inc. required suppliers and buyers of either e-commerce business to (1) subscribe to the other marketplace, and (2) to exclusively deal with GHX and Neoforma.

Plaintiff and defendant had entered into an agreement regarding a building where plaintiff expected to locate its offices; this is when the animosity between the parties emerged. Defendant was renting a building plaintiff wanted for its corporate offices.  Plaintiff offered to buy the building and relieve defendant from its lease, which was still in effect for additional 7 years. Both the owner of the building and defendant agreed to plaintiff's proposal. Yet, part of the agreement with the defendant required the defendant's company, GE Financial, to finance plaintiff's purchase of the building.  GE Financial later decided not to provide financing.
 
Plaintiff filed a claim alleging defendant violated 15 U.S.C. §1 when GE Financial denied financing of the building purchase.  Plaintiff argued this action constituted "Concerted Refusal to Deal," a "Refusal to Deal in Furtherance of a Monopoly," a "Refusal to Deal/Denial of Unique Financial Instrument," and a "Conspiracy in Restraint of Trade." Plaintiff also alleged defendant's action violated 15 U.S.C. §2; under this section, it claimed "Restraint of Trade through Monopoly," "Restraint of Trade through Attempted Monopolization," "Single Firm Refusal to Deal," "Refusal to Deal 'Change of Pattern," and "Refusal to Deal Denial of Essential Facility." In sum, plaintiff alleged that defendant tried to monopolize the market of hospital supplies delivered through e-commerce in North America.   

The appeal court affirmed the district court ruling denying plaintiff's claims.  It held that plaintiff's allegations under 15 U.S.C. §1, even admitting the existence of a horizontal agreement (GE Financial agreement) to boycott plaintiff's e-commerce business, GE Financial's refusal to provide financing was not considered an antitrust violation.  Plaintiff, the court said, did not have to buy that building to enter into the e-commerce hospital supply market and GE Financial option was not the only financial instrument to accomplish the purchase, even if plaintiff argues otherwise.  Regarding the 15 U.S.C. §2 claim, the court held that the defendant, GE, was not in the e-commerce market of hospital supplies and therefore it did not hold a monopoly power or be attempting to hold monopoly power as the statutory test requires.  Additionally, the court said, plaintiff's argument that GHX was GE's alter ego and should be held responsible for GE's actions was conclusive and unsupported.  GHX appeared owned by several companies and it was not proven whether GE had controlling power over GHX.    

If antitrust cases in the offline world are profoundly fact-oriented and difficult to prove, it can certainly be affirmed that antitrust e-commerce cases will be extremely challenging.  Just delimitation of the market and the need of substantial electronic evidence required to prove "e-commerce monopoly," are complex endeavors.             

Martha L. Arias, Immigration and Internet Law Attorney, Miami; IBLS Director

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