Brief of Former Antitrust Officials and Antitrust Scholars to US Supreme Court in CoStar v CREXi
INTERESTS OF AMICI CURIAE[1]
Amici curiae are former antitrust officials and scholars who have spent decades enforcing and studying the Nation’s antitrust laws. Amici believe the decision below, if upheld, would upend foundational antitrust principles and open the floodgates to baseless antitrust suits.
Amici are the following:[2]
- Timothy J. Muris, J.D., is a George Mason University Foundation Professor of Law at Antonin Scalia Law School, George Mason University, and a Senior Counsel at Sidley Austin LLP. He served as Chairman of the FTC from 2001–2004. Before becoming Chairman, Tim served as Director of the Bureau of Consumer Protection and Director of the Bureau of Competition. He is the only person ever to head both of the agency’s enforcement bureaus.
- Alden Abbott, J.D., is a Senior Research Fellow focusing on antitrust issues at the Mercatus Center at George Mason University. He served as General Counsel of the FTC from 2018–2021, where he represented the Commission in court and provided legal advice to its representatives.
- Daniel J. Gilman, J.D., Ph.D., is a Senior Scholar of Competition Policy at the International Center for Law & Economics. He previously served as an attorney advisor in the FTC’s Office of Policy Planning and as the Victor H. Kramer Foundation Fellow in antitrust law and economics at Harvard Law School.
- Justin (Gus) Hurwitz, J.D., is the Director of Law & Economics Programs at the International Center for Law & Economics and a Senior Fellow and Academic Director of the Center for Technology, Innovation, and Competition at the University of Pennsylvania Carey Law School. He previously served as a trial attorney with the U.S. Justice Department Antitrust Division in the Telecommunications and Media Enforcement section.
- Geoffrey A. Manne, J.D., is the President and Founder of the International Center for Law & Economics and serves as distinguished fellow at Northwestern University’s Center on Law, Business, and Economics, and as visiting professor of law at IE University (Madrid). Before founding ICLE in 2009, he served as a law professor at Lewis & Clark Law School and as a Bigelow Fellow and Lecturer in Law at the University of Chicago Law School.
INTRODUCTION AND SUMMARY OF ARGUMENT
The Sherman Act is the “Magna Carta of free enterprise.” Verizon Comm’cns Inc. v. Law Offs. of Curtis v. Trinko, LLP, 540 U.S. 398, 415 (2004). It directs itself “not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.” Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993). And it does so not to protect corporate or private interests, but from concern for consumer welfare and the public interest. Id. “It is axiomatic that the antitrust laws were passed for ‘the protection of competition, not competitors.’” Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993) (emphasis in original) (citation omitted).
For almost four decades, CoStar Group, Inc. and CoStar Realty Information, Inc. (“CoStar”) have provided commercial real estate (“CRE”) services. Commercial Real Estate Exchange Inc. (“CREXi”), launched almost a decade ago, is attempting to build its own CRE platform. CoStar filed suit against CREXi in September 2020, alleging that CREXi harvests content from CoStar’s subscription database without authorization by using passwords issued to other companies. In response, CREXi filed eight counterclaims for violations of the Sherman Act and the Cartwright Act. The district court twice dismissed them all. Pet. 38a–58a.
The Ninth Circuit reversed. In doing so, it made a critical error warranting certiorari: The Ninth Circuit joined the wrong side of a circuit split by concluding that CREXi plausibly alleged that CoStar’s contractual provisions with brokers are “de facto” exclusivity provisions that violate the Sherman Act. Id. 102a–105a. The Ninth Circuit had never before “explicitly recognized a ‘de facto’ exclusive dealing theory.” Aerotec Int’l, Inc. v. Honeywell Int’l, Inc., 836 F.3d 1171, 1182 (9th Cir. 2016). And for good reason: A careful examination of this theory reveals that it lacks a sound doctrinal foundation, and that this Court’s precedents, historical context, and administrability concerns all counsel strongly against recognizing this theory.
The decision below contravenes this Court’s precedents and bedrock antitrust principles. Left undisturbed, the Ninth Circuit’s expansive interpretation of antitrust law would allow baseless claims to proceed to discovery, stifle innovation, and deepen the circuit split regarding the scope of exclusive dealing claims permitted under the Sherman Act.
ARGUMENT
I. The De Facto Exclusive Dealing Theory Cannot be Used to Transform Non-Exclusive Contractual Provisions into Exclusivity Provisions.
Despite acknowledging that the Ninth Circuit had “yet to recognize a de facto exclusive dealing theory,” Pet. 22a (citing Aerotec, 836 F.3d at 1182), the court below did so here. That was error. The Second and Eighth Circuits have rejected this theory, and a close examination of its underpinnings reveals that it lacks any sound doctrinal foundation. The Court should grant certiorari to resolve a deepening circuit split and make clear to the lower courts that the de facto exclusive dealing has no legal merit.
A. The De Facto Exclusive Dealing Theory Lacks Any Doctrinal Foundation.
The notion of de facto exclusive dealing can be traced back to a century-old case involving Section 3 of the Clayton Act, United Shoe Machinery Corp. v. United States, 258 U.S. 451 (1922). In United Shoe, this Court held that a contract falls within the Clayton Act’s section as to exclusivity, even though the contract does “not contain specific agreements not to use the [goods] of a competitor,” if “the practical effect … is to prevent such use.” Id. at 457. The Court noted that the provisions at issue there amounted to “tying agreements” and that, due to the “dominating position in supply shoe machinery” occupied by United Shoe, they “effectually prevent[ed] [the lessee] from acquiring the machinery of a competitor,” except “at the risk of forfeiting the right to use the machines furnished by” United Shoe. Id. at 457–58.
Although this theory first emerged in United Shoe, the few modern cases recognizing de facto exclusive dealing as a valid theory have relied on language from yet another case involving Section 3 of the Clayton Act—Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961). In Tampa Electric, the Court surveyed its cases “pass[ing] upon questions arising under [Section] 3” of the Clayton Act, including its holding in United Shoe, and concluded that a contract “found to be an exclusive dealing arrangement” does not violate “[S]ection [3] unless the court believes it probable that performance of the contract will foreclose competition in a substantial share of the line of commerce affected.” Id. at 325, 327. Notably, the Court “assume[d], but d[id] not decide” that the requirements contract at issue in fact was “an exclusive-dealing arrangement within the compass of [Section] 3,” and ultimately held that the contract did not violate Section 3. Id. at 330, 335. So too, because the contract did not “fall within the broader proscription” of the Clayton Act, the court concluded that “it is not forbidden by” Sections 1 and 2 of the Sherman Act. Id. at 335.
From these humble beginnings in Section 3 cases, the Third and Eleventh Circuits have recognized a de facto exclusive dealing theory.[3] See Pet. 23a (citing ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 282 n.14 (3d Cir. 2012) & McWane, Inc. v. FTC, 783 F.3d 814, 819–20, 833–35 (11th Cir. 2015)). Under this theory, although a contract does not contain an agreement to deal exclusively, courts will “look ‘past the terms of’” the non-exclusive contract “to ascertain the relationship between the parties and the effect of the agreement in the real world.” Aerotec, 836 F.3d at 1182 (quoting ZF Meritor, LLC, 696 F.3d at 270). But this precedent is a slender reed.
The Third Circuit became the first circuit since the turn of the century to bless this theory in LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) (en banc). Although the court did not mention the theory by name, the court rejected 3M’s argument that an arrangement “that contained no express exclusivity requirement” could not support an exclusive dealing claim under Section 2, and held that the arrangement—bundled rebates and discounts offered to major suppliers—were designed to and did operate as exclusive dealing arrangements. Id. at 157. Not long after, in another Section 2 case, the court similarly reasoned that “a series of independent sales” could be an “exclusive dealing arrangement” if accompanied by certain “economic elements”—i.e., sufficiently large market share and exclusionary conduct. United States v. Dentsply Int’l, Inc., 399 F.3d 181, 193–94 (3d Cir. 2005).
In ZF Meritor, the Third Circuit offered its most thorough discussion of this theory. There, the court held that “an exclusive dealing claim does not require a contract that imposes an express exclusivity obligation” or “a contract that covers 100% of the buyer’s needs” because “de facto exclusive dealing may be unlawful.” ZF Meritor, 696 F.3d at 282 & n.14. The legality of such a contract, the court reasoned, turns on “whether the agreement foreclosed a substantial share of the relevant market such that competition was harmed.” Id. at 283. But even in crediting such a claim, the court acknowledged that “‘partial’ exclusive dealing is rarely a valid antitrust theory” because contracts that are not “100% exclusive” are “generally lawful because market foreclosure is only partial, and competing sellers are not prevented from selling to the buyer.” Id. at 283 (collecting cases rejecting such claims).
In McWane, the Eleventh Circuit became the second circuit court to recognize this theory. McWane—a major player in the iron pipe fittings market—announced that, with limited exceptions, “unless [their distributors] bought all of their domestic fittings from McWane, they would lose their rebates and be cut off from purchases for 12 weeks.” McWane, 783 F.3d at 819. The FTC brought an enforcement action under Section 5 of the FTC Act and ultimately found that McWane’s actions “constituted an illegal exclusive dealing policy.” Id. Critically, the Commission and the ALJ found that distributors were “essential to the domestic fittings market” because there were no “viable alternate distribution channels, including direct sales to end users.” Id. at 834.
Before the Eleventh Circuit, McWane argued that its exclusivity program was “presumptively legal” because it was “short-term and voluntary.” Id. at 833. The court noted that neither its precedent nor precedent from this Court spoke “specifically to this issue,” but it ultimately agreed with the FTC that the de facto exclusive dealing approach from Dentsply and ZF Meritor was “consistent with the Supreme Court’s instruction to look at the ‘practical effect’ of exclusive dealing arrangements.” Id. at 834 (citing Tampa Elec., 365 U.S. at 326–28). Grafting this framework from the Section 3 context onto its analysis, the court considered “market realities” rather than “formalistic distinctions” and rejected “McWane’s argument that the specific form of its exclusivity mandate” made it “presumptively legal” and thus “insulated … from antitrust scrutiny.” Id. at 835.
As all this makes clear, the theoretical underpinnings of the de facto exclusive dealing theory are threadbare. Prior to the decision below, the Third Circuit was the only circuit court that had imported this doctrine into Section 2 cases. Only one opinion—ZF Meritor—had ever extended this doctrine to an exclusive dealing claim under Section 1, and it offered nothing more than ipse dixit and its own Section 3 Clayton Act precedent to do so. As noted, Tampa Electric declined to consider whether such a contract could violate Section 1 or Section 2, see 365 U.S. at 335, so its analysis offers no support for this doctrinal move.
At bottom, the Second and Eighth Circuits, which have both rejected de facto exclusive dealing on the facts presented, see Pet. 9–11, have adopted the approach best aligned with governing antitrust principles. This Court should grant certiorari to endorse their approach and resolve the clear confusion among the lower courts.
B. This Court’s Cases, Historical Context, and Administrability Concerns Counsel Strongly Against Recognizing The De Facto Exclusive Dealing Theory.
De facto exclusive dealing theories like the one adopted below run headlong into this Court’s precedent, the historical development of exclusive-dealing doctrine, and basic administrability limits on antitrust adjudication. The approach of the court below detaches “exclusive dealing” from any meaningful contractual commitment or exclusionary conduct—resting instead on speculative third-party “chilling effects” untethered from the agreements’ text. See Pet. 24a. That move only conflicts with this Court’s warnings that judges are “ill suited” to police “terms of dealing.” Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 452 (2009). The opinion below also lacks any persuasive basis for importing Section 3 of the Clayton Act’s “practical effect” framework into Sherman Act cases, particularly given the Sherman Act’s distinct doctrinal foundations.
Historical practice reinforces the point: Before the Clayton Act, most exclusive-dealing arrangements challenged under the Sherman Act were upheld, and the Clayton Act’s targeted intervention reflected a deliberate shift away from Sherman’s more tolerant baseline. Finally, even if antitrust doctrine disfavored formalism in the abstract, this Court has consistently insisted on clear, administrable rules where open-ended standards would chill ordinary, procompetitive contracting and invite courts to become regulators of commercial relationships.
To start, the court below conceded that the contracts at issue did not “contain [the] rebate or discount terms that create[d] de facto exclusivity” in ZF Meritor and McWane. Pet. 23a. Without a sufficient textual basis in the agreements, the court below instead credited CREXi’s threadbare allegation that the terms “have a chilling effect on brokers’ willingness to work with competitors, for fear that they will run afoul of CoStar’s overbroad terms.” Id. at 24a. The court below overstepped its bounds. Given that this Court has held that courts are “ill suited” to identify proper “terms of dealing,” they are even more inadequately stationed to police “terms of dealing” based on third parties’ reactions to non-exclusive contract terms, including at the motion-to-dismiss stage. Linkline, 555 U.S. at 452. Indeed, prior to the opinion below, no court had entertained such a broad conception of de facto exclusive dealing divorced from express contractual terms and the defendant’s conduct.
Tellingly, including in the opinion below, no court that has adopted the de facto exclusive dealing theory has offered any rationale—let alone a convincing one—for uncritically grafting United Shoe’s and Tampa Electric’s “practical effect” test for Clayton Act Section 3 cases onto Sherman Act cases. While this test arguably flows from the Clayton Act, United Shoe, 258 U.S. at 457, it is not clear that the same can be said for the Sherman Act, see Aerotec, 836 F.3d at 1181. Indeed, given that both United Shoe and Tampa Electric employ an “approach [that] is a relic from a ‘bygone era of statutory construction,’” Food Mktg. Inst. v. Argus Leader Media, 588 U.S. 427, 437 (2019), courts should be—at the very least—skeptical that such an approach accords with the Sherman Act. Far from constituting an “overly formalistic rule,” Pet. 22a, tethering de facto exclusive dealing to the contractual text and the parties’ conduct provides reasonable guardrails against limitless antitrust liability for parties’ ordinary, procompetitive practices.
Historical context likewise cautions against jettisoning the bright-line rule applied by the Second and Eighth Circuits. As the leading antitrust treatise has noted, the historical record shows that before the Clayton Act, exclusive dealing arrangements were analyzed under the Sherman Act and the vast majority were found lawful, “just as they had always been at common law.” Areeda & Hovenkamp, Antitrust Law ¶ 1800c (Aug. 2023); see, e.g., Whitwell v. Cont’l Tobacco Co., 125 F. 454, 461 (8th Cir. 1903) (approving tobacco company’s granting of rebates to dealers who refused to sell competing brands because the arrangement left smaller rivals free to capture business by offering buying “lower prices” or “better terms”); cf. U.S. Tel. Co. v. Cent. Union Tel. Co., 202 F. 66 (6th Cir. 1913) (condemning 99-year exclusive long-distance telephone contract under the Sherman Act).
Moreover, institutional and administrability concerns counsel restraint. To be sure, “[a]ntitrust analysis must always be attuned to the particular structure and circumstances of the industry at issue,” Trinko, 540 U.S. at 411, and “[l]egal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law,” Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 466–67 (1992). But this Court has “repeatedly emphasized the importance of clear rules in antitrust law.” Linkline, 555 U.S. at 452; see also Town of Concord v. Bos. Edison Co., 915 F.2d 17, 22 (1st Cir. 1990) (Breyer, C.J.) (antitrust rules “must be clear enough for lawyers to explain them to clients”). Indeed, courts are “ill suited ‘to act as central planners, identifying the proper price, quantity, and other terms of dealing.’” Linkline, 555 U.S. at 452 (quoting Trinko, 540 U.S. at 408).
CONCLUSION
For all the foregoing reasons, the petition for certiorari should be granted.
[1] Pursuant to Supreme Court Rule 37.6, counsel for amici curiae states that no counsel for a party authored this brief in whole or in part, and no person or entity other than amici curiae or their counsel made a monetary contribution to this brief’s preparation or submission. All parties have received timely notice of the filing of this brief.
[2] Amici submit this brief in their personal capacities and, accordingly, speak only for themselves personally and not for any entity or other person.
[3] Chase Mfg., Inc. v. Johns Manville Corp., 84 F.4th 1157 (10th Cir. 2023), did not rest on converting facially nonexclusive contract language into exclusivity based on speculative third-party “chilling effects.” Rather, the alleged foreclosure there flowed from Johns Manville’s (an entity which owned more than 97% of the relevant market) affirmative threats to cut off distributors that purchased a rival’s product—i.e., an asserted exclusivity policy, not an inference untethered to contractual text.