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SILICON VALLEY ANTITRUST V.5
BOALT HALL SCHOOL OF LAW (2015)
Hanno Kaiser

TYING
“[T]he vice of tying arrangements lies in the use of economic power in one
market to restrict competition on the merits in another.” Northern Pacific
Railway Comp., v. U.S., 356 U.S. 1, 11 (1958).

TYING ELEMENTS
1. Two products
	- "Separate demand" for at least one of the two
	- Beware of the "rapid success" problem
2. Tie
	- Contract
	- Technology
	- Economic
3. Market power in the tying product market
	- Relevant market
	- Market share (at least 30%)
	- Barriers to entry
4. Impact on the tied product market
	- Yes, if at least 30% market share (foreclosure)
	- Maybe, if > $50,000 commerce affected (old test of questionable validity)
	
TYING AS A "PER SE" OFFENSE?
- Tying is technically the only vertical "per se" offense
- However, substantively, tying is analyzed under a ROR (see Elements 3 and 4)

CONCEPT
Tying is a "TWO MARKETS" leveraging offense. Company A with market power in
market 1 (the TYING product market) uses its market power to gain an unfair
advantage in market 2 (the TIED product market) by conditioning the sale of
product 1 on the purchase of product 2. E.g., IF you want my patented cannery
machine (= TYING product) THEN you must also buy my salt (= TIED product). 

EXAMPLE
EU "Windows Media Player" Case:

┌───────────────────────────────┐   ┌──────────────────────────────┐
│ Company A (sells 2 products;  │   │ Company B (sells 1 product;  │
│   "long line") = Defendant    │   │  "short line") = Plaintiff   │
└───────────────────────────────┘   └──────────────────────────────┘
┌──────────────┐ ┌──────────────┐   ┌──────────────────────────────┐
│ Tying Market │ │ Tied Market  │   │         Tied Market          │
│ (OS/Windows) │ │    (Media    │   │     (Other media player)     │
│ MARKET POWER │ │ players/WMP) │   │                              │
└──────────────┘ └──────────────┘   └──────────────────────────────┘
        │                │                          │               
        │                │                                          
        │                │                          │               
   IF you want     ... THEN you      Effect: Evasion of competition 
  Windows, ...       must also       on the merits (Customer already
        │            take WMP.             has a media player)      
        │                │                    = Foreclosure         
        │                │                                          
        │                |                          │               
        │        ┌──────────────┐                                   
        │        │              │                   │               
        └───────>│   Customer   │< ─ ─ ─ ─ ─ ─ ─ ─ ─                
                 │              │                                   
                 └──────────────┘                                   

Tying is a stand-alone §1 offense and a common form of exclusionary conduct
within a §2 monopolization claim. Note that in a §2 context, the defendant
almost always monopolizes (or attempts to monopolize) the TIED product market.

RELATIONSHIP OF §1 TYING AND §2 MONOPOLIZATION, BASED ON TYING AS EXCLUSIONARY
CONDUCT

          ┌───────┐           
          │  §1   │           
          └───────┘           
              │               
      ┌───────┴───────┐       
      │               │       
      |               |       
┌───────────┐   ┌───────────┐ 
│ Agreement │   │    URT    │ 
└───────────┘   └───────────┘ 
                      │       
                   ┌──┴───┐   
                   |      |   
                ┌────┐ ┌────┐ 
                │ AE │ │ PE │ 
                └────┘ └────┘ 
                   │          
                   |          
           ╔══════════════╗   
           ║    Tying     ║──┐
           ╚══════════════╝  │
           ┌──────────────┐  │
           │  2 Products  │--+
           └──────────────┘  │
           ┌──────────────┐  │
           │     Tie      │--+
           └──────────────┘  │
           ┌──────────────┐  │
           │  MP (Tying)  │  │
           │ > 30% share  │--+
           └──────────────┘  │
           ┌──────────────┐  │
           │Effect (Tied) │--+
           └──────────────┘   
           
                       ┌───────┐                                 
                       │  §2   │                                 
                       └───────┘                                 
                           │                                     
         ┌─────────────────┴──────────┬───────────────┐          
         │                    ┌───────┼───────────────┼───────┐  
         |                    │       |               |   ROR │  
   ┌───────────┐              │┌─────────────┐ ┌─────────────┐│  
   │ Monopoly  │              ││Exclusionary │ │ No business ││  
┌──│   power   │<---Causation--+   conduct   │ │justification││  
│  └───────────┘              ││    P: AE    │ │    D: PE    ││  
│  ╔═══════════╗              │└─────────────┘ └─────────────┘│  
│  ║  Market   ║              │       │                       │  
├─>║definition ║<=====+       └───────┼───────────────────────┘  
│  ╚═══════════╝      ║               │                          
│  ┌───────────┐      ║               │                          
│  │  Market   │      ║               │                          
├─>│   share   │      ║               |                          
│  │  (>60%)   │      ║       ╔══════════════╗                   
│  └───────────┘      ║       ║    Tying     ║──┐                
│  ┌───────────┐      ║       ╚══════════════╝  │                
│  │   Entry   │      ║       ┌──────────────┐  │                
└─>│ barriers  │      ║       │  2 Products  │--+                
   └───────────┘      ║       └──────────────┘  │                
                      ║       ┌──────────────┐  │                
                      ║       │     Tie      │--+                
                      ║       └──────────────┘  │                
                      ║       ┌──────────────┐  │                
                      ║       │  MP (Tying)  │  │                
                      ║       │ > 30% share  │--+                
                      ║       └──────────────┘  │                
                      ║       ╔══════════════╗  │                
                      ╚══════>║Effect (Tied) ║--+                
                              ╚══════════════╝                   

As a result:

1. If A lacks market power in the TYING product market (<30%), then the tying
claim does not work. No market power in the tying product market, no tying
claim.
2. If A has market power in the TYING product market (>30%) but lacks monopoly
(60%) or near-monopoly (~ 50%) power in the TIED product market, then §1 tying
is the only available cause of action
3. If A has market power in the TYING product market and has monopoly (60%) or
near-monopoly (~ 50%) power in the TIED product market, then, in addition to §1
tying, §2 monopolization or attempted monopolization of the TIED product market
under §2 is available.

ADDITIONAL EXAMPLES

EXAMPLE 1 
=========

Market power in TYING product market (cannery, 40%), no market power in TIED
product market (salt, 1%)

§1 TYING (+/-)
1. Agreement (between machine/salt maker and cannery)
2. Unreasonable restraint of trade

+-- TYING MODULE ---------------------------------------------------+ 
|  a. 2 products (machine, salt) (+)                                |
|  b. Tie (contract; "IF you want my machine,                       |
|     THEN you must also buy my salt") (+)                          |
|  c. MP in TYING product market (machine) (+)                      |
|  d. Effect in TIED product market (salt) (+/-)                    |
|     - Under the old "some effect" (~$50,000) theory, yes;         |
|       Questionable under the modern "meaningful foreclosure"      |
|       theory                                                      |
+-------------------------------------------------------------------+

§2 MONOPOLIZATION (-)
1. Monopoly power (salt) (-)

EXAMPLE 2
=========

Market power in TYING product market (mobile operating systems, 70%), and market
power in TIED product market (mobile search, 80%)

§1 TYING (+)
1. Agreement (between Google and the OEMs)
2. Unreasonable restraint of trade

+-- TYING MODULE ---------------------------------------------------+ 
|  a. 2 products (mobile OS, search) (+)                            |
|  b. Tie (contract; "if you want the full version of Android,      |
|     THEN you must make Google the default search engine") (+)     |
|  c. MP in TYING product market (Android) (+)                      |
|  d. Effect in TIED product market (search) (+)                    |
+-------------------------------------------------------------------+

§2 MONOPOLIZATION (+)
1. Monopoly power (search, M2) (+)
2. Exclusionary conduct (tying) (+)

+-- TYING MODULE = SAME AS ABOVE -----------------------------------+ 
|  a. 2 products (mobile OS, search) (+)                            |
|  b. Tie (contract; "if you want the full version of Android,      |
|     THEN you must make Google the default search engine") (+)     |
|  c. MP in TYING product market (Android) (+)                      |
|  d. Effect in TIED product market (search) (+)                    |
+-------------------------------------------------------------------+

3. Lack of business justifications (?)

Note that the direction of the tie matters. Suppose that there is only the
contractual tie mentioned above ("IF you want Android, THEN you must make Google
search the default"). Is there tying claim where search is the tying product
(after all, Google has a 80% share in the search market this hypo) and mobile OS
is the tied product? Not on these facts, because you don't have to take Android
in order to get search.