DOJ And FTC Will Discuss Whether Bundled Discounts Are A Bundle Of Antitrust Trouble Or A Bundle Of Joy For Consumers

By Ankur Kapoor[1]

The Federal Trade Commission (“FTC”) and the Antitrust Division of the U.S. Department of Justice will attempt to unravel the antitrust pros and cons of bundled discounts and other conditional-pricing practices in a one-day public workshop on June 23, 2014.

Bundled discounts, which are discounts offered for the purchase of a “bundle” of goods or services, exist in many markets.  The undisputed heavyweight champion of bundled discounts is the fast-food value meal, for which you pay some five cents more to get the fries (how can you say no to that?).

Although most bundled discounts are good for competition because customers love a good deal, there are cases where bundled discounts can exclude competition and, on balance, harm consumers.  For example, when a company has a monopoly in one product market (say, broadband internet service), it can raise prices in that market and then offer a “discount” only to customers that also buy some other product in a competitive market (say, telephone service).  Because customers need the monopoly product and don’t want to turn down the “discount” on that product, they end up buying the second product from the monopolist as well, to the exclusion of other companies competing in the second product market.  Even if competitors may be able to compete in the first product market, that complicates but does not eliminate the anticompetitive potential of the bundled discount.

Compounding the uncertainty of bundled discounts’ competitive effects is the wide variation among federal courts in the rule used to assess the legality of bundled discounts.  Some courts employ a test involving a variation of the calculation used to determine whether pricing is below cost, i.e., predatory.  See, e.g., Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008); Ortho Diagnostic Sys. v. Abbott Labs., 920 F. Supp. 455 (S.D.N.Y. 1996).  Others don’t consider cost to be a factor.  See LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003).

The Supreme Court has yet to address these ubiquitous business practices.

The Antitrust Division and the FTC will try to bring some much-needed clarity to this murky area of antitrust law in the public workshop on June 23.  The agencies are also seeking public comments by industry representatives, lawyers, and economists on the competitive effects and legality of bundled discounts, market-share discounts (discounts for buyers’ commitments to buy a certain percentage of their required products), and other conditional pricing practices.  The FTC/DOJ workshop will help shape the agencies’ antitrust enforcement in this area, which in turn will be a major factor in how the law develops.

Comments to the agencies are due by August 22, 2014.

– Edited by Gary J. Malone

 

[1]  Ankur Kapoor was part of Constantine Cannon’s team in Ortho Biotech v. Amgen, in which the firm represented Ortho Biotech in its bundled-discounting antitrust case against Amgen.  The firm’s work focused on the competitive effects of Amgen’s bundled discounting.  Amgen settled the case by agreeing to stop the challenged bundled-discount program and paying Ortho $200 million.  (And Ankur’s sister-in-law was named the Bundle Queen during her summer job at Blockbuster Video in Kings Park, N.Y., for her enthusiastic promotion of microwave popcorn sales.)