Nynex Corporation v. Discon, Inc.

PETITIONER: Nynex Corporation
RESPONDENT: Discon, Inc.
LOCATION: Knowles' Car

DOCKET NO.: 96-1570
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 525 US 128 (1998)
ARGUED: Oct 05, 1998
DECIDED: Dec 14, 1998

ADVOCATES:
James R. Young - Argued the cause for the petitioners
Lawrence C. Brown - Argued the cause for the respondent
Lawrence G. Wallace - On behalf of the United States, as amicus curiae

Facts of the case

Discon Incorporated sold services to remove obsolete telephone equipment to Material Enterprises Company, a subsidiary of NYNEX Corporation. When Material Enterprises started to buy removal services from AT&T Technologies instead, Discon filed suit alleging NYNEX had engaged in unfair and anticompetitive practices. Discon claimed that Material Enterprises paid AT&T more than Discon would have received. Material Enterprises passed on the extra cost to the customers of NYNEX. Material Enterprises then received a rebate from AT&T and shared it with NYNEX. Discon alleged these practices were intended to them and to benefit their competitor, AT&T, because Discon refused to participate in the scheme. The District Court dismissed the suit for failure to state a claim. The Court of Appeals affirmed the dismissal, but held Discon's claims were founded under the Sherman Act. Discon had a valid claim in antitrust rules that prohibit group boycotts because the practices were anticompetitive. Moreover, the complaint stated a valid conspiracy to monopolize. NYNEX argued that this case did not constitute a group boycott and therefore it could not proceed.

Question

Does the antitrust rule outlawing group boycotts apply to a single buyer's decision to buy from one company over another?

Media for Nynex Corporation v. Discon, Inc.

Audio Transcription for Oral Argument - October 05, 1998 in Nynex Corporation v. Discon, Inc.

William H. Rehnquist:

We'll hear argument now in Number 96-1570, NYNEX Corporation v. Discon, Inc....

Mr. Young.

James R. Young:

Mr. Chief Justice, and may it please the Court:

In explaining why the Second Circuit was wrong, I'd like to focus on two legal principles.

The first is that an antitrust case brought by a disappointed supplier must contain adequate allegations of harm to competition and not just harm to the competitor, and the second is that that harm-to-competition requirement is not met simply by an allegation that the supplier was terminated for a bad reason, even if that reason is in violation of laws other than the antitrust laws.

The lower courts have repeatedly used these principles to deal efficiently and appropriately with meritless but tempting treble damage antitrust suits brought by suppliers and distributors in the lower courts and, in doing so, they have been consistent with the principles of GTE Sylvania and Sharp, because the very cost of this litigation alone... these cases go on for years.

The expenses are tremendous.

These costs are a tremendous chill on the right to, a purchaser's right to change suppliers freely, which is the essence of the competitive process.

The Second Circuit made a substantive error.

It extended group boycott law to cover a vertical nonprice agreement despite the clear requirement that a group boycott requires a horizontal agreement.

Now, the second circuit made this error apparently because it confused an alleged regulatory fraud in the telephone services market, the aim of which was to raise local telephone rates, for a competitive problem, but this case has nothing to do with rivalry among providers of local telephone service.

Discon in its brief acknowledges that.

Now, apparently, because of this confusion the Second Circuit did not even examine whether there were concrete allegations of market-wide harm to competition in the removal services market, which is the only relevant market here.

Anthony M. Kennedy:

So if costs were passed on to the consumer, that's just irrelevant?

James R. Young:

It's very relevant for regulatory purposes, but the question in a rule of reason analysis in the removal services market is whether or not a price now put in the conditions of competition in that market were changed, where...

Anthony M. Kennedy:

It seems to me if you have a monopolist that's the buyer and the agreement is to eliminate all but one supplier, and if you assume that those costs are going to be passed on to the consumer, I don't know why that isn't part of the competitive analysis, at least under the rule of reason.

James R. Young:

The... I think the important portion that is relevant under the rule of reason, as I say, it's not whether local telephone rates were raised.

There are regulatory commissions to examine those issues.

The question is, what were the terms of rivalry in the removal services market, and that's really where the Second Circuit I think missed the boat.

It did not even examine whether or not there was harm to competition in that market.

Now, one of the most...

Ruth Bader Ginsburg:

On that question...

Anthony M. Kennedy:

Suppose we could show the costs were passed on to the consumers, and that that was the necessary effect of this, and it's a rule of reason analysis.

In a rule of reason case, the court would not admit the testimony if the costs were passed on to the consumers, unnecessarily?

James R. Young:

In a rule of reason case, Justice Kennedy, I think that fact, the fact that costs were passed on, is irrelevant to the rule of reason antitrust analysis.

John Paul Stevens:

But may I just interrupt with, what about the costs of removal services?

What if the alleged conspiracy, which may or may not have existed, result in higher costs of removal services?

James R. Young:

That's the core of the case, Your Honor.

John Paul Stevens:

And don't they allege that they did, that Technologies bid $998,000, and the plaintiff was bidding about half that amount any they mark it up to amounts still less than...

James R. Young:

Just...