US Supreme Court Nominee Judge Gorsuch and Antitrust Law

On January 31, 2017, President Trump announced the nomination of Tenth Circuit Judge Neil Gorsuch to fill Justice Antonin Scalia’s former seat on the US Supreme Court. This Advisory reviews Judge Gorsuch’s approach to antitrust issues as reflected in his opinions.

During his decade on the bench, Judge Gorsuch’s most significant antitrust decisions have addressed refusals to deal. He has authored two refusal to deal opinions and joined another, deciding in each case that the plaintiffs had failed to show that the defendants had sacrificed short-term profits in pursuit of a longer-term anticompetitive goal. His view of the refusal to deal doctrine is well within the judicial mainstream. Judge Gorsuch also has authored or joined a handful of antitrust decisions outside the refusal to deal context, and they do not reveal any particular doctrinal bias or provide a clear indication of his potential views on antitrust issues beyond the refusal to deal context.

In the refusal to deal area, Judge Gorsuch wrote the opinions in Four Corners Nephrology Associates, PC v. Mercy Medical Center of Durango¹ and Novell, Inc. v. Microsoft Corp.,² and joined the panel’s opinion in Christy Sports, LLC v. Deer Valley Resort Co., Ltd.³ In all three cases, the court rejected the refusal to deal claims, citing as a key reason the absence of any sacrifice of short-term profits.

In Four Corners, the defendant was a hospital in Durango, Colorado that barred doctors other than members of its active staff from providing nephrology services at the hospital. The hospital claimed that the restriction was necessary because its new nephrology practice would not be sustainable if outside doctors could use the hospital to provide nephrology services.⁴ The plaintiff, a doctor seeking to provide nephrology services at the hospital, sued under Section 2 of the Sherman Act, alleging that the hospital attempted to monopolize the market for physician nephrology services in the Durango area. The district court granted summary judgment in favor of the hospital on the ground that it lacked monopoly power or a dangerous probability of achieving it, given that it had little power to influence the pricing of government or commercial health plans.⁵

Judge Gorsuch’s opinion affirmed the district court’s ruling—but on different grounds. Although he said that the arguments about monopoly power raise “interesting questions,” he declined to address them because the refusal to deal claims failed for two other independent reasons.⁶ First, he wrote that the hospital had no duty to deal with doctors other than the one it hired.⁷ He distinguished Aspen Skiing Co. v. Aspen Highlands Skiing Corp.,⁸—a case in which the Supreme Court upheld a refusal to deal claim—on the ground that Aspen Skiing involved the termination of a relationship that was profitable in the short term to achieve anticompetitive goals in the long term.⁹ In contrast, the hospital was trying to avoid a relationship with the outside doctor that would not be profitable in the short term.¹⁰ Second, Judge Gorsuch concluded that the plaintiff had not suffered antitrust injury. The plaintiff was not seeking to prevent or undo a monopoly, he said, but rather to share in benefits of the hospital’s arguable monopoly position, and there was no guarantee that the relief he sought would benefit consumers.¹¹

Novell v. Microsoft involved refusal to deal claims brought by Novell against Microsoft. Novell, which sold WordPerfect and other office software, alleged that Microsoft unlawfully deprived software developers of pre-release design information that would help them create applications for Windows 95. Initially, Microsoft had made this information available to developers. But before Windows 95 was released, Microsoft reversed course, telling developers that it would stop providing this information and that the information already provided was no longer reliable.¹² Although Microsoft’s decision did not prevent third parties from developing applications for Windows 95, it did increase the time required for development.¹³

Judge Gorsuch’s opinion affirmed the district court’s judgment in favor of Microsoft, concluding that Novell’s claims did not fit “through the narrow-eyed needle of refusal to deal doctrine.”¹⁴As in Four Corners, the key fact was that there was no evidence of a sacrifice of short-term profits. Instead, Judge Gorsuch explained, “all the evidence suggests that Microsoft’s decision came about as a result of a desire to maximize the company’s immediate and overall profits.”¹⁵ Judge Gorsuch added that courts must examine the company as a whole when applying the profit sacrifice test, so even if Novell could show that Microsoft sacrificed short-term profits in operating systems, this would be outweighed by the short-term gains that Microsoft enjoyed in office software.¹⁶ Novell attempted to salvage its claims with two alternative theories, but Judge Gorsuch rejected them. First, Novell argued that Microsoft had violated Section 2 because it “‘affirmatively’ induced reliance on its intellectual property only then to pull the rug out from underneath it, raising Novell’s cost of doing business in the process.”¹⁷ Judge Gorsuch held that such a claim is still, at bottom, a refusal to deal claim and therefore doomed by the absence of any profit sacrifice.¹⁸ Second, Novell argued that the case fell outside the usual confines of refusal to deal doctrine because Microsoft had engaged in deceptive conduct—giving “pretextual technical reasons” for denying information when its “real reasons were competitive in nature.”¹⁹ Judge Gorsuch rejected this theory too, explaining that it was not Microsoft’s alleged deception that caused antitrust injury, but rather Microsoft’s refusal to deal.²⁰

In addition to the two refusal to deal opinions he authored, Judge Gorsuch joined the unanimous opinion written by Judge Michael McConnell in Christy Sports, LLC v. Deer Valley Resort Co., Ltd. A ski rental company purchased a parcel of land from a ski resort business, subject to a restrictive covenant that allowed the resort to bar “ancillary businesses” (such as ski rentals) from operating on the land.²¹ After allowing the rental company to operate for 15 years, the resort revoked that permission, presumably to generate more business for its own newly-opened ski rental business.²² Judge McConnell rejected the rental company’s Section 2 refusal to deal claim. As in Four Corners and Novell, the decision turned primarily on the absence of profit sacrifice. According to Judge McConnell, the complaint suggested that the resort “expects to increase (not forsake) short-term profits by operating its own ski rental facility . . . .”²³ He added that even if enforcing the restrictive covenant would allow the resort to raise prices and decrease output, this would not give rise to Section 2 liability because the resort had the right to do this from the beginning, and any decrease in competition “represents simply a return to a formerly valid level of competition.”²⁴

Judge Gorsuch’s narrow interpretation of the refusal to deal doctrine is not unusual among other federal courts, and it is consistent with the Supreme Court’s skepticism of the doctrine. In Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, Justice Scalia wrote on behalf of six Justices that the Court has been “very cautious” in upholding refusal to deal claims, “because of the uncertain virtue of forced sharing and the difficulty of identifying and remedying anticompetitive conduct by a single firm.”²⁵ Judge Gorsuch has expressed reservations about the doctrine for similar reasons, commenting for example in Novell that “forced sharing” comes with the obligation for courts to “pick and choose the applicable terms and conditions,” requiring them “to become ‘central planners.’”²⁶ Given the similarity of Justice Scalia’s views of refusal to deal claims to those of his would-be successor, it seems unlikely that Judge Gorsuch’s elevation to the Supreme Court would portend significant changes to current doctrine on this subject.

Other than refusal to deal cases, Judge Gorsuch has not been involved in many major antitrust cases. His few decisions in this area do not suggest any strong leanings that would allow prediction of his substantive views of antitrust issues beyond the refusal to deal context.

In Kay Electric Cooperative v. City of Newkirk, Oklahoma,²⁷ Judge Gorsuch wrote the panel’s opinion reversing a district court’s holding that a municipality was immune from federal antitrust law. The municipality was a seller of electricity services. When a new jail expressed interest in purchasing electricity services from a cooperative, the municipality threatened to cut off sewage services to the jail.²⁸ The jail unsurprisingly reversed course and agreed to purchase electricity from the municipality, and the cooperative sued.²⁹ Judge Gorsuch’s opinion analyzes the complex legal doctrines governing municipal immunity from antitrust laws. He explained that the general principle is that a municipality is immune when a state seeks to implement policy through the municipality, but that the law remains unclear as to how precisely this policy must be articulated by the state.³⁰ Judge Gorsuch said that he favored a clear statement rule, but he did not decide this issue.³¹ Rather, he concluded that the state had not articulated any policy authorizing the municipality’s behavior, clearly or otherwise, which means that the municipality is subject to federal antitrust laws.³² He remanded the case for consideration of the underlying claims, which were not at issue in the appeal.³³

In Been v. O.K. Industries, Inc.,³⁴ Judge Gorsuch joined the opinion of Judge Briscoe, affirming the district court’s jury instructions regarding calculation of damages. Been was a case under the Packers and Stockyards Act PSA in which a plaintiff alleged that a large poultry producer’s practices injured or were likely to injure competition.³⁵The jury instructions said that damages could be calculated based on the profits actually received by plaintiffs compared with the profits they would have received in a hypothetical competitive market. Relying on Sherman Act case law, Judge Briscoe held that the jury instructions were not an abuse of discretion, noting that “[t]he vagaries of the marketplace usually deny us sure knowledge of what plaintiff’s situation would have been in the absence of the defendant’s antitrust violation.”³⁶

Kay Electric and Been suggest that Judge Gorsuch is not philosophically opposed to finding antitrust liability under appropriate circumstances. In Kay, Judge Gorsuch seemed comfortable with the idea that the underlying conduct could theoretically form the basis of a tying and attempted monopolization claim. In Been, the opinion joined by Judge Gorsuch was deferential to the district court’s approved methodology for calculating damages and related evidentiary rulings.