Last in our series on the ABA Antitrust Section’s 2016 Spring Meeting, but certainly not least, we bring you Jetta’s summary of the panel discussion on hub-and-spoke conspiracies. These conspiracies seem to be in vogue now, with the Apple (e-book) case prominent among them. Not surprisingly, the government and the defense bar sees these cases very differently.

Kudos to our associates for preparing these summaries. We hope you have enjoyed them. Stay tuned for future articles and podcasts.

-Jay Levine

The concept of “hub-and-spoke” conspiracies can be found in cases dating back to at least 1939, most notably, the Supreme Court’s decision in Interstate Circuit v. United States. Such conspiracies involve both horizontal agreements, meaning agreements among competitors, and vertical agreements, which are agreements among parties at different levels of the distribution chain. In hub-and-spoke conspiracies, there has to be at least one vertical participant, which is referred to as the “hub.” The agreements between the hub and the competitor participants are the “spokes,” and the agreement among the competitors forms the “rim.”

When it comes to the agreement between the hub and any given spoke, the question is whether that agreement should be considered vertical – because it occurs between parties at different levels of the distribution chain – or is it horizontal because it facilitates the agreement among and between the spokes (i.e., the horizontal competitors). This is an important distinction because certain horizontal agreements are per se illegal, obviating any need to investigate market definition or market power and precluding any ability to justify the agreement. On the other hand, ever since the Supreme Court’s 2007 decision in Leegin Creative Leather Products Inc. v. PSKS Inc., all vertical agreements have been analyzed under the rule of reason wherein market definition, market power and business/efficiency justifications, among other things, are all considered before liability is imposed. Just when antitrust practitioners thought there was at least one bright line rule regarding the application of the rule of reason versus per se analysis, along came the recent rash of hub-and-spoke conspiracy decisions, which kicked up a cloud of uncertainty. As a panel at the 2016 ABA Spring Meeting discussed during the “Clarifying Liability in Hub-and-Spoke Conspiracies” presentation, the line described above may no longer be as bright as it once was.

The panelists explained that, despite its long history, there remains much uncertainty when it comes to assessing liability in a hub-and-spoke conspiracy. Can all the agreements be analyzed under the same rubric? Or do the horizontal components have to be analyzed separately from the vertical components? This uncertainty is evidenced by two recent decisions: the Second Circuit’s 2-1 decision in United States v. Apple (e-books), and the 9th’s Circuit decision in In re: Musical Instruments and Equipment Antitrust Litigation (Guitar Center). In the e-books case, Apple made certain demands to various book publishers regarding the manner in which e-books would be priced to all the customers of that publisher. Several of the largest publishers acquiesced to Apple’s demands, knowing that other publishers had or would do the same. The Second Circuit analyzed the entire conspiracy under a single rubric and found Apple liable as the hub of the conspiracy under a per se analysis. The court reasoned that the publishers, all of whom were competitors, participated in a horizontal agreement to fix price, and that Apple was a party to that agreement, even though Apple was a vertical participant. Thus, Apple was guilty of participating in a per se illegal horizontal agreement.

The 9th Circuit, though, reached the opposite result in Guitar Center. The case involved individual guitar manufacturers who agreed to adopt minimum advertised price (MAP) policies at the demand of Guitar Center. Focusing on the vertical agreements between Guitar Center and the manufacturers, the court held that there was no conspiracy. The Court reasoned that the manufacturers’ “decisions to heed similar demands made by a common, important customer do not suggest conspiracy or collusion.”

One of the government panelists cautioned that when analyzing a conspiracy, the analysis should not be fixated on the name. A price-fixing conspiracy by any other name is still a price-fixing conspiracy. (Not quite Shakespeare, but you get the point.) Defense lawyers will no doubt take issue with this position.

In terms of where hub-and-spoke jurisprudence is heading, one of the panelists suggested that the technology sector will be the subject of the next wave of hub-and-spoke litigation. She predicted that as technology finds new ways to connect customers with suppliers, we will see the agreements that facilitate this connectivity subject to greater antitrust scrutiny. The case against Uber Technologies, Inc. in the U.S. District for the Southern District of New York is a prime example. Only last month, the court denied Uber Technologies, Inc.’s motion to dismiss a lawsuit filed by passengers alleging a price-fixing conspiracy that involves both horizontal and vertical agreements (Meyer v. Kalanick). With the case on track to reach the summary judgment stage by this fall, many practitioners will be watching this case very closely to see if it provides any clarity in an otherwise opaque area of antitrust law.