Bert Foer on the Appeal of Ticketmaster: an AAI column

Albert A. Foer
American Antitrust Institute

FTC: WATCH, February 15, 1999

 

The primary mission of the Antitrust Division and the Federal Trade Commission is to see that the antitrust laws are enforced in a manner that protects the public and consumer interests in competition. The Antitrust Bar is therefore wondering why the Division and the Commission decided to go to bat for a monopolist in the U.S. Supreme Court, with the effect of expanding the Illinois Brick bias against consumers. The case was Alex Campos, et al, v. Ticketmaster Corporation (Oct. Term, 1998, No. 98-127). In January, 1999, the Supreme Court granted the Government’s request by denying the plaintiffs’ petition for a writ of certiorari.

For purposes of this case, which takes the petitioners’ allegations as true, Ticketmaster distributes 90% of all tickets to large-scale popular music concerts and has exclusive contracts with the largest and most popular arenas and venues controlling two-thirds of the market. The Antitrust Division had closed a monopolization investigation of Ticketmaster without taking action, on the theory that there were no significant entry barriers. Congress held hearings on that decision. There has apparently been no entry in the intervening four years.

Petitioners are consumers who bought tickets through Ticketmaster. Their class action alleges that (1) Ticketmaster attempted to monopolize and monopolized in violation of Section 2 of the Sherman Act; (2) Ticketmaster and unnamed co-conspirators, including venues and promoters, entered into improper exclusive dealing agreements, fixed prices for ticket services, and conspired to boycott certain performers of popular music, in violation of Section 1 of the Sherman Act; and (3) Ticketmaster acquired competing firms, in violation of Section 7 of the Clayton Act. Petitioners sought treble damages based on alleged overcharges in ticket distribution service fees that reflected Ticketmaster’s exercise of monopoly power.

The point I wish to pursue relates to the holdings of the District Court and the Eighth Circuit that the ticket purchasers were indirect rather than direct purchasers, and therefore –in accordance with the principle in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977)—lacked antitrust standing for damages. My argument (here, at least) is not with the Illinois Brick principle itself, but with how it was applied. Beyond that, I am concerned with the wisdom of the Government’s decision to support a monopolist it might well be challenging in the future by advocating an unnecessarily broad interpretation of Illinois Brick. The effect of this action is to undermine private enforcement of the antitrust laws.

On first glance, it seems strained to say that a consumer who buys a concert ticket from Ticketmaster is only an indirect purchaser of the ticket. After all, the transaction is between the consumer and Ticketmaster and Ticketmaster directly charges the consumer a separately stated service and convenience fee that can be as high as twenty dollars per ticket.

No, says the Government in its brief opposing Supreme Court review, Ticketmaster sells its ticket distribution services directly to venues (e.g., an arena), and only indirectly to ticket buyers. In other words, Ticketmaster is only an agent, and its service and convenience fees are set by contract with the principal, with a percentage of these fees going to the principal.

One might concede that Ticketmaster is the venue’s agent with respect to the physical ticket, but argue that the service aspect is separate. Here a stated fee is paid over to Ticketmaster by the consumer for a service provided directly to the consumer, and it is this fee which reflects Ticketmaster’s monopoly power.

No, again, the Government says. Ticketmaster acts as the venue’s agent when it sells tickets. "And the designated service charge that Ticketmaster collects does not represent its compensation, which is fixed by contract with the venue, usually at a different amount."

Let me translate this into personal terms. In a former life, I used to operate retail jewelry stores. Some of our merchandise (called ‘owned goods’) we purchased from vendors. Some of it we held on consignment (called ‘memo goods’ in the trade). The customer had no way of knowing which items were in which category. If we sold a memo good, part of the price would go to the vendor and part would stay with us. Had my stores attained monopoly status (which unfortunately was never an issue), and had we overcharged our customers, it is beyond belief to think that only those customers who purchased overpriced owned goods could come back at us for damages, whereas those who purchased memo goods would be deemed indirect purchasers because we were mere agents of vendors in those transactions.

The Government might say, in your case there was no contract establishing the total price to the consumer. This hardly seems relevant. If the rule of law is to be that establishing a contracted retail price on memo goods is all we would have to do in order to avoid antitrust liability, we could certainly make that a habit. (The Government says "sham" contracts would not suffice, but ours would be well-papered.)

The Government’s fine-tuned distinctions just don’t make sense to a consumer because they are foreign to commercial reality. Reasonable perceptions of the nature of the transaction should prevail in antitrust as in tort. If I give the consumer reason to think he is purchasing from me, I should be the one he looks to if he is damaged. And isn’t it peculiar to call Ticketmaster, a monopolist, an agent, as if it didn’t dictate terms to the so-called principals, the venues? Indeed, the monopolist’s control over the venues and promoters is precisely the reason why they are not likely to bring an antitrust suit. By falling for a formalistic approach (which is contrary to Sylvania and the last twenty-plus years of antitrust jurisprudence), the Government has brought us to a point that the Court in Illinois Brick wanted to avoid: a situation where there is no one who is capable of vindicating the public interest in the face of an antitrust injury. The precedent is all the more disturbing in that we can anticipate more agency-type relationships as e-commerce expands on the internet.

Because the venues were in contract with Ticketmaster, one might argue that they were co-conspirators. This possible approach, too, is fought by the Government. First, it says that the failure of the plaintiffs to name co-conspirators or join them as defendants is crucial. "If the direct purchaser [the venue] is not a party to the indirect purchaser’s suit against a monopolist, any finding that the direct purchaser conspired with the monopolist would have no preclusive effect in a subsequent action by the direct purchaser." Hence, there could be the type of double recovery that the Illinois Brick rule was created to avoid.

But put this into reality. Assume that the consumers are awarded money against Ticketmaster on a co-conspiracy theory without co-conspirators being named or joined as defendants. Ticketmaster would have to pay the entire damages. Could the venues turn around and sue Ticketmaster for monopolization? They would have no motivation to do so, except possibly to argue that more tickets would have been sold in the absence of Ticketmaster’s monopoly pricing – and this would represent a different type of damage. Moreover, the Government’s position that the plaintiff must name every co-conspirator as a co-defendant could have the effect of allowing nationwide antitrust violations to go unremedied since no court would have jurisdiction or venue over all the co-conspirators.

The Government had ample opportunity to take a different posture in this case. It could have taken the side of the strong dissenting opinion in the Eighth Circuit, which stated that the failure to recognize ticket buyers as direct purchasers meant that the Illinois Brick precedent was being improperly and harmfully stretched. And it could have argued for a position taken by two of the other Circuits that, amidst allegations of sellers conspiring with intermediaries in the distribution chain, Illinois Brick is no bar to suit.

It is disappointing that our federal antitrust agencies, crushed by a workload that doesn’t stop, are now not only using their resources to advocate the antitrust-limiting precedent of Illinois Brick, a position we would have expected in the Reagan era, but doing so by taking a narrow and technical approach that practically eliminates the chances of anyone ever recovering damages from Ticketmaster.