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Polygram Holding, Inc. v. FTC - 367 U.S. App. D.C. 367, 416 F.3d 29 (2005)


Rather than focusing upon the category to which a particular restraint should be assigned, judicial precedent emphasizes the basic point that under 15 U.S.C.S. § 1 the essential inquiry is whether the challenged restraint enhances competition. In order to make that determination, a court must make an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint, which in some cases may not require a full-blown market analysis. The object is to see whether the experience of the market has been so clear, or necessarily will be, that a confident conclusion about the principle tendency of a restriction will follow from a quick (or at least quicker) look, in place of a more sedulous one. And of course what the court sees may vary over time, if rule-of-reason analyses in case after case reach identical conclusions.


Petitioner PolyGram Holding, Inc. entered into an agreement with its competitor, Warner Communications, Inc., to distribute the recording of a concert to be given by "The Three Tenors" in 1998. The two companies later entered into a separate agreement to suspend, for 10 weeks, advertising and discounting of two earlier Three Tenors concert albums, one distributed by PolyGram and the other by Warner. The Federal Trade Commission (FTC), which held that PolyGram violated 15 U.S.C.S. § 45 of the Federal Trade Commission Act by entering into the agreement with Warner to temporarily suspend advertising and discounting of the two record albums.


Did PolyGram violate 15 U.S.C.S. § 45 of the FTC by entering an agreement with Warner to temporarily suspend advertising and discounting of two record albums, one distributed by PolyGram and the other by Warner?




The Court of Appeals for the District of Columbia Circuit held that the FTC's analytical framework did not conflict with judicial precedent regarding restraint of trade because as applied, it allowed the court to ascertain whether the challenged restrain hindered competition. Although the FTC used the term "inherently suspect," the applied framework gave rise to a rebuttable presumption of illegality based on the close family resemblance between the suspect practice and another practice that already stood convicted in the court of consumer welfare. PolyGram’s agreement with Warner had a deleterious effect upon consumers as it looked suspiciously like a naked price fixing agreement between competitors. Although the temporary moratorium appeared likely to mitigate the spillover effects that could have been expected to follow the company's aggressive launch of an album, the "free riding" to be eliminated was nothing more than the competition of products that were not part of the joint undertaking. Thus, PolyGram did not identify any competitive justification for the agreement. The remedy was reasonable as the finding of a significant risk for similar, future arrangements was supported by substantial evidence.

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