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“Rule of Reason” vs. “Per Se” Liability

These prohibitions against contracts, combinations or conspiracies in restraint of trade may sound very broad. If you think about it, every contract—and every standard—restrains trade in some way.

The courts have fashioned two tests that they apply to a possible antitrust situation. The first is a “rule of reason” test to which only restraints of trade that are unreasonable are forbidden. In applying the rule of reason, the courts look at several factors such as the nature of the particular industry involved, the effect of the restraint and the purpose of the restraint. If the activity, while restraining trade, has a “pro-competitive” or otherwise positive effect, it usually will not be deemed to have violated the antitrust laws.

To date, the courts generally have applied the “rule of reason” to the process of standards development. They also have acknowledged that properly conducted standards work is both necessary and beneficial to affected stakeholders.

The second test that courts apply to activities that restrain trade is a “per se” test. This test prohibits certain conduct without any review as to the precise harm that conduct has caused or the business excuse for engaging in that conduct. In other words, the courts do not evaluate whether there are any pro-competitive effects from the restraint of trade; that analysis is irrelevant. The courts have labeled these types of conduct as “per se” illegal because of their “pernicious effect on competition and lack of any redeeming virtue.”

Some examples of conduct that the courts have held to be “per se” illegal are price fixing (two competitors agreeing to set the same price), certain group boycotts (for example, intentional efforts to keep a competitor from being certified), a horizontal division of a market (two competitors agreeing to split up a market) and certain tie-in sales (when the purchase of one item is improperly conditioned on the purchase of a second item).

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