Jefferson Parish Hosp. Dist. v. HydeAnnotate this Case
466 U.S. 2 (1984)
U.S. Supreme Court
Jefferson Parish Hosp. Dist. v. Hyde, 466 U.S. 2 (1984)
Jefferson Parish Hospital District No. 2 v. Hyde
Argued November 2, 1983
Decided March 27, 1984
466 U.S. 2
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE FIFTH CIRCUIT
A hospital governed by petitioners has a contract with a firm of anesthesiologists requiring all anesthesiological services for the hospital's patients to be performed by that firm. Because of this contract, respondent anesthesiologist's application for admission to the hospital's medical staff was denied. Respondent then commenced an action in Federal District Court, claiming that the exclusive contract violated § 1 of the Sherman Act, and seeking declaratory and injunctive relief. The District Court denied relief, finding that the anticompetitive consequences of the contract were minimal, and outweighed by benefits in the form of improved patient care. The Court of Appeals reversed, finding the contract illegal "per se." The court held that the case involved a "tying arrangement" because the users of the hospital's operating rooms (the tying product) were compelled to purchase the hospital's chosen anesthesiological services (the tied product), that the hospital possessed sufficient market power in the tying market to coerce purchasers of the tied product, and that, since the purchase of the tied product constituted a "not insubstantial amount of interstate commerce," the tying arrangement was therefore illegal "per se."
Held: The exclusive contract in question does not violate § 1 of the Sherman Act. 466 U. S. 9-32.
(a) Any inquiry into the validity of a tying arrangement must focus on the market or markets in which the two products are sold, for that is where the anticompetitive forcing has its impact. Thus, in this case, the analysis of the tying issue must focus on the hospital's sale of services to its patients, rather than its contractual arrangements with the providers of anesthesiological services. In making that analysis, consideration must be given to whether petitioners are selling two separate products that may be tied together, and, if so, whether they have used their market power to force their patients to accept the tying arrangement. Pp. 466 U. S. 9-18.
(b) No tying arrangement can exist here unless there is a sufficient demand for the purchase of anesthesiological services separate from hospital services to identify a distinct product market in which it is efficient to offer anesthesiological services separately from hospital services. The
fact that the exclusive contract requires purchase of two services that would otherwise be purchased separately does not make the contract illegal. Only if patients are forced to purchase the contracting firm's services as a result of the hospital's market power would the arrangement have anticompetitive consequences. If no forcing is present, patients are free to enter a competing hospital and to use another anesthesiologist instead of the firm. 466 U. S. 18-25.
(c) The record does not provide a basis for applying the per se rule against tying to the arrangement in question. While such factors as the Court of Appeals relied on in rendering its decision -- the prevalence of health insurance as eliminating a patient's incentive to compare costs, and patients' lack of sufficient information to compare the quality of the medical care provided by competing hospitals -- may generate "market power" in some abstract sense, they do not generate the kind of market power that justifies condemnation of tying. Tying arrangements need only be condemned if they restrain competition on the merits by forcing purchases that would not otherwise be made. The fact that patients of the hospital lack price consciousness will not force them to take an anesthesiologist whose services they do not want. Similarly, if the patients cannot evaluate the quality of anesthesiological services, it follows that they are indifferent between certified anesthesiologists even in the absence of a tying arrangement. Pp. 466 U. S. 26-29.
(d) In order to prevail in the absence of per se liability, respondent has the burden of showing that the challenged contract violated the Sherman Act because it unreasonably restrained competition, and no such showing has been made. The evidence is insufficient to provide a basis for finding that the contract, as it actually operates in the market, has unreasonably restrained competition. All the record establishes is that the choice of anesthesiologists at the hospital has been limited to one of the four doctors who are associated with the contracting firm. If respondent were admitted to the hospital's staff, the range of choice would be enlarged, but the most significant restraints on the patient's freedom to select a specific anesthesiologist would nevertheless remain. There is no evidence that the price, quality, or supply or demand for either the "tying product" or the "tied product" has been adversely affected by the exclusive contract, and no showing that the market as a whole has been affected at all by the contract. Pp. 466 U. S. 29-32.
686 F.2d 286, reversed and remanded.
STEVENS, J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, and BLACKMUN, JJ., joined. BRENNAN, J., filed a concurring opinion, in which MARSHALL, J., joined, post, p. 466 U. S. 32. O'CONNOR,
J., filed an opinion concurring in the judgment, in which BURGER, C.J., and POWELL and REHNQUIST, JJ., joined, post, p. 466 U. S. 32.
JUSTICE STEVENS delivered the opinion of the Court.
At issue in this case is the validity of an exclusive contract between a hospital and a firm of anesthesiologists. We must decide whether the contract gives rise to a per se violation of § 1 of the Sherman Act [Footnote 1] because every patient undergoing
surgery at the hospital must use the services of one firm of anesthesiologists, and, if not, whether the contract is nevertheless illegal because it unreasonably restrains competition among anesthesiologists.
In July, 1977, respondent Edwin G. Hyde, a board-certified anesthesiologist, applied for admission to the medical staff of East Jefferson Hospital. The credentials committee and the medical staff executive committee recommended approval, but the hospital board denied the application because the hospital was a party to a contract providing that all anesthesiological services required by the hospital's patients would be performed by Roux & Associates, a professional medical corporation. Respondent then commenced this action seeking a declaratory judgment that the contract is unlawful and an injunction ordering petitioners to appoint him to the hospital staff. [Footnote 2] After trial, the District Court denied relief, finding that the anticompetitive consequences of the Roux contract were minimal, and outweighed by benefits in the form of improved patient care. 513 F.Supp. 532 (ED La.1981). The Court of Appeals reversed because it was persuaded that the contract was illegal "per se." 686 F.2d 286 (CA5 1982). We granted certiorari, 460 U.S. 1021 (1983), and now reverse.
In February, 1971, shortly before East Jefferson Hospital opened, it entered into an "Anesthesiology Agreement" with Roux & Associates (Roux), a firm that had recently been organized by Dr. Kermit Roux. The contract provided that any anesthesiologist designated by Roux would be admitted to the hospital's medical staff. The hospital agreed to
provide the space, equipment, maintenance, and other supporting services necessary to operate the anesthesiology department. It also agreed to purchase all necessary drugs and other supplies. All nursing personnel required by the anesthesia department were to be supplied by the hospital, but Roux had the right to approve their selection and retention. [Footnote 3] The hospital agreed to
"restrict the use of its anesthesia department to Roux & Associates and [that] no other persons, parties or entities shall perform such services within the Hospital for the ter[m] of this contract."
App.19. [Footnote 4]
The 1971 contract provided for a 1-year term automatically renewable for successive 1-year periods unless either party elected to terminate. In 1976, a second written contract was executed containing most of the provisions of the 1971 agreement. Its term was five years, and the clause excluding other anesthesiologists from the hospital was deleted; [Footnote 5] the hospital nevertheless continued to regard itself as committed to a closed anesthesiology department. Only Roux was permitted to practice anesthesiology at the hospital. At the
time of trial the department included four anesthesiologists. The hospital usually employed 13 or 14 certified registered nurse anesthetists. [Footnote 6]
The exclusive contract had an impact on two different segments of the economy: consumers of medical services, and providers of anesthesiological services. Any consumer of medical services who elects to have an operation performed at East Jefferson Hospital may not employ any anesthesiologist not associated with Roux. No anesthesiologists except those employed by Roux may practice at East Jefferson.
There are at least 20 hospitals in the New Orleans metropolitan area, and about 70 percent of the patients living in Jefferson Parish go to hospitals other than East Jefferson. Because it regarded the entire New Orleans metropolitan area as the relevant geographic market in which hospitals compete, this evidence convinced the District Court that East Jefferson does not possess any significant "market power"; therefore it concluded that petitioners could not use the Roux contract to anticompetitive ends. [Footnote 7] The same evidence led the Court of Appeals to draw a different conclusion. Noting that 30 percent of the residents of the parish go to East Jefferson Hospital, and that, in fact, "patients tend to choose hospitals by location, rather than price or quality," the Court of
Appeals concluded that the relevant geographic market was the East Bank of Jefferson Parish. 686 F.2d at 290. The conclusion that East Jefferson Hospital possessed market power in that area was buttressed by the facts that the prevalence of health insurance eliminates a patient's incentive to compare costs, that the patient is not sufficiently informed to compare quality, and that family convenience tends to magnify the importance of location. [Footnote 8]
The Court of Appeals held that the case involves a "tying arrangement" because the
"users of the hospital's operating rooms (the tying product) are also compelled to purchase the hospital's chosen anesthesia service (the tied product)."
Id. at 289. Having defined the relevant geographic market for the tying product as the East Bank of Jefferson Parish, the court held that the hospital possessed "sufficient market power in the tying market to coerce purchasers of the tied product." Id. at 291. Since the purchase of the tied product constituted a "not insubstantial amount of interstate commerce," under the Court of Appeals' reading of our decision in Northern Pacific R. Co. v. United States,356 U. S. 1, 356 U. S. 11 (1958), the tying arrangement was therefore illegal "per se." [Footnote 9]
Certain types of contractual arrangements are deemed unreasonable as a matter of law. [Footnote 10] The character of the restraint produced by such an arrangement is considered a sufficient basis for presuming unreasonableness without the necessity of any analysis of the market context in which the arrangement may be found. [Footnote 11] A price-fixing agreement between competitors is the classic example of such an arrangement. Arizona v. Maricopa County Medical Society,457 U. S. 332, 457 U. S. 343-348 (1982). It is far too late in the history of our antitrust jurisprudence to question the proposition that certain tying arrangements pose an unacceptable risk of stifling competition, and therefore are unreasonable "per se." [Footnote 12] The rule was first enunciated in International Salt Co. v. United States,332 U. S. 392, 332 U. S. 396 (1947), [Footnote 13] and has been endorsed
by this Court many times since. [Footnote 14] The rule also reflects congressional policies underlying the antitrust laws. In enacting § 3 of the Clayton Act, 38 Stat. 731, 15 U.S.C. § 14, Congress expressed great concern about the anticompetitive character of tying arrangements. See H.R.Rep. No. 627, 63d Cong., 2d Sess., 10-13 (1914); S.Rep. No. 698, 63d Cong., 2d Sess., 6-9 (1914). [Footnote 15] While this case
does not arise under the Clayton Act, the congressional finding made therein concerning the competitive consequences of tying is illuminating, and must be respected. [Footnote 16]
It is clear, however, that not every refusal to sell two products separately can be said to restrain competition. If each of the products may be purchased separately in a competitive market, one seller's decision to sell the two in a single package imposes no unreasonable restraint on either market, particularly
if competing suppliers are free to sell either the entire package or its several parts. [Footnote 17]
For example, we have written that,
"if one of a dozen food stores in a community were to refuse to sell flour unless the buyer also took sugar, it would hardly tend to restrain competition in sugar if its competitors were ready and able to sell flour by itself."
Northern Pacific R. Co. v. United States, 356 U.S. at 7. [Footnote 18] Buyers often find package sales attractive; a seller's decision to offer such packages can merely be an attempt to compete effectively -- conduct that is entirely consistent with the Sherman Act. See Fortner Enterprises v. United States Steel Corp.,394 U. S. 495, 394 U. S. 517-518 (1969) (Fortner I) (WHITE, J., dissenting); id. at 394 U. S. 524-525 (Fortas, J., dissenting).
Our cases have concluded that the essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all or might have preferred to purchase elsewhere on different terms. When such "forcing" is present, competition on the merits in the market for the tied item is restrained, and the Sherman Act is violated.
"Basic to the faith that a free economy best promotes the public weal is that goods must stand the cold test of competition; that the public, acting through the market's impersonal judgment, shall allocate the Nation's resources, and thus direct the course its economic development will take. . . . By conditioning his sale of one commodity on
the purchase of another, a seller coerces the abdication of buyers' independent judgment as to the 'tied' product's merits and insulates it from the competitive stresses of the open market. But any intrinsic superiority of the 'tied' product would convince freely choosing buyers to select it over others anyway."
Accordingly, we have condemned tying arrangements when the seller has some special ability -- usually called "market
power" -- to force a purchaser to do something that he would not do in a competitive market. See United States Steel Corp. v. Fortner Enterprises,429 U. S. 610, 429 U. S. 620 (1977) (Fortner II); Fortner I, 394 U.S. at 394 U. S. 503-504; United States v. Loew's Inc.,371 U. S. 38, 371 U. S. 45, 371 U. S. 48, n. 5 (1962); Northern Pacific R. Co. v. United States, 356 U.S. at 6-7. [Footnote 20] When "forcing" occurs, our cases have found the tying arrangement to be unlawful.
Thus, the law draws a distinction between the exploitation of market power by merely enhancing the price of the tying product, on the one hand, and by attempting to impose restraints on competition in the market for a tied product, on the other. When the seller's power is just used to maximize its return in the tying product market, where presumably its product enjoys some justifiable advantage over its competitors, the competitive ideal of the Sherman Act is not necessarily compromised. But if that power is used to impair competition on the merits in another market, a potentially inferior product may be insulated from competitive pressures. [Footnote 21] This impairment could either harm existing competitors or create barriers to entry of new competitors in the market for the tied product, Fortner I, 394 U.S. at 509, [Footnote 22] and can increase
the social costs of market power by facilitating price discrimination, thereby increasing monopoly profits over what they would be absent the tie, Fortner II, 429 U.S. at 617. [Footnote 23] And from the standpoint of the consumer -- whose interests the statute was especially intended to serve -- the freedom to select the best bargain in the second market is impaired by his need to purchase the tying product, and perhaps by an inability to evaluate the true cost of either product when they are available only as a package. [Footnote 24] In sum, to permit restraint of competition on the merits through tying arrangements would be, as we observed in Fortner II, to condone "the existence of power that a free market would not tolerate." 429 U.S. at 429 U. S. 617 (footnote omitted).
Per se condemnation -- condemnation without inquiry into actual market conditions -- is only appropriate if the existence of forcing is probable. [Footnote 25] Thus, application of the per se rule
focuses on the probability of anticompetitive consequences. Of course, as a threshold matter, there must be a substantial potential for impact on competition in order to justify per se condemnation. If only a single purchaser were "forced" with respect to the purchase of a tied item, the resultant impact on competition would not be sufficient to warrant the concern of antitrust law. It is for this reason that we have refused to condemn tying arrangements unless a substantial volume of commerce is foreclosed thereby. See Fortner I, 394 U.S. at 394 U. S. 501-502; Northern Pacific R. Co. v. United States, 356 U.S. at 356 U. S. 6-7; Times-Picayune, 345 U.S. at 345 U. S. 608-610; International Salt, 332 U.S. at 332 U. S. 396. Similarly, when a purchaser is "forced" to buy a product he would not have otherwise bought even from another seller in the tied-product market, there can be no adverse impact on competition, because no portion of the market which would otherwise have been available to other sellers has been foreclosed.
Once this threshold is surmounted, per se prohibition is appropriate if anticompetitive forcing is likely. For example, if the Government has granted the seller a patent or similar monopoly over a product, it is fair to presume that the inability to buy the product elsewhere gives the seller market power. United States v. Loew's Inc., 371 U.S. at 371 U. S. 45-47. Any effort to enlarge the scope of the patent monopoly by using the market power it confers to restrain competition in the market for a second product will undermine competition on the merits in that second market. Thus, the sale or lease of a patented item on condition that the buyer make all his purchases of a separate tied product from the patentee is unlawful. See United States v. Paramount Pictures, Inc.,334 U. S. 131, 334 U. S. 156-159 (1948); International Salt, 332
The same strict rule is appropriate in other situations in which the existence of market power is probable. When the seller's share of the market is high, see Times-Picayune Publishing Co. v. United States, 345 U.S. at 345 U. S. 611-613, or when the seller offers a unique product that competitors are not able to offer, see Fortner I, 394 U.S. at 394 U. S. 504-506, and n. 2, the Court has held that the likelihood that market power exists and is being used to restrain competition in a separate market is sufficient to make per se condemnation appropriate. Thus, in Northern Pacific R. Co. v. United States,356 U. S. 1 (1958), we held that the railroad's control over vast tracts of western real estate, although not itself unlawful, gave the railroad a unique kind of bargaining power that enabled it to tie the sales of that land to exclusive, long-term commitments that fenced out competition in the transportation market over a protracted period. [Footnote 26] When, however, the
seller does not have either the degree or the kind of market power that enables him to force customers to purchase a second, unwanted product in order to obtain the tying product, an antitrust violation can be established only by evidence of an unreasonable restraint on competition in the relevant market. See Fortner I, 394 U.S. at 394 U. S. 499-500; Times-Picayune Publishing Co. v. United States, 345 U.S. at 345 U. S. 614-615.
In sum, any inquiry into the validity of a tying arrangement must focus on the market or markets in which the two products are sold, for that is where the anticompetitive forcing has its impact. Thus, in this case, our analysis of the tying issue must focus on the hospital's sale of services to its patients, rather than its contractual arrangements with the providers of anesthesiological services. In making that analysis, we must consider whether petitioners are selling two separate products that may be tied together, and, if so, whether they have used their market power to force their patients to accept the tying arrangement.
The hospital has provided its patients with a package that includes the range of facilities and services required for a variety of surgical operations. [Footnote 27] At East Jefferson Hospital, the package includes the services of the anesthesiologist. [Footnote 28] Petitioners argue that the package does not involve a tying arrangement
at all -- that they are merely providing a functionally integrated package of services. [Footnote 29] Therefore, petitioners contend that it is inappropriate to apply principles concerning tying arrangements to this case.
Our cases indicate, however, that the answer to the question whether one or two products are involved turns not on the functional relation between them, but rather on the character of the demand for the two items. [Footnote 30] In Times-Picayune Publishing Co. v. United States,345 U. S. 594 (1953), the Court held that a tying arrangement was not present because the arrangement did not link two distinct markets for products that were distinguishable in the eyes of buyers. [Footnote 31] In
Fortner I, the Court concluded that a sale involving two independent transactions, separately priced and purchased from the buyer's perspective, was a tying arrangement. [Footnote 32] These
cases make it clear that a tying arrangement cannot exist unless two separate product markets have been linked.
The requirement that two distinguishable product markets be involved follows from the underlying rationale of the rule against tying. The definitional question depends on whether the arrangement may have the type of competitive consequences addressed by the rule. [Footnote 33] The answer to the question whether petitioners have utilized a tying arrangement must be based on whether there is a possibility that the economic effect of the arrangement is that condemned by the rule against tying -- that petitioners have foreclosed competition on the merits in a product market distinct from the market for the tying item. [Footnote 34] Thus, in this case, no tying arrangement can exist unless there is a sufficient demand for the purchase of anesthesiological services separate from hospital services
to identify a distinct product market in which it is efficient to offer anesthesiological services separately from hospital services. [Footnote 35]
Unquestionably, the anesthesiological component of the package offered by the hospital could be provided separately and could be selected either by the individual patient or by one of the patient's doctors if the hospital did not insist on including anesthesiologcal services in the package it offers to its customers. As a matter of actual practice, anesthesiological services are billed separately from the hospital services petitioners provide. There was ample and uncontroverted testimony that patients or surgeons often request specific anesthesiologists to come to a hospital and provide anesthesia, and that the choice of an individual anesthesiologist separate from the choice of a hospital is particularly frequent in respondent's specialty, obstetric anesthesiology. [Footnote 36] The District
Court found that "[t]he provision of anesthesia services is a medical service separate from the other services provided by the hospital." 613 F.Supp. at 540. [Footnote 37] The Court of Appeals agreed with this finding, and went on to observe:
"[A]n anesthesiologist is normally selected by the surgeon, rather than the patient, based on familiarity gained through a working relationship. Obviously, the surgeons who practice at East Jefferson Hospital do not gain familiarity with any anesthesiologists other than Roux and Associates."
686 F.2d at 291. [Footnote 38] The record amply supports the conclusion that consumers differentiate between anesthesiological services and the other hospital services provided by petitioners. [Footnote 39]
Thus, the hospital's requirement that its patients obtain necessary anesthesiological services from Roux combined the purchase of two distinguishable services in a single transaction. [Footnote 40] Nevertheless, the fact that this case involves a required
purchase of two services that would otherwise be purchased separately does not make the Roux contract illegal. As noted above, there is nothing inherently anticompetitive about packaged sales. Only if patients are forced to purchase Roux's services as a result of the hospital's market power would the arrangement have anticompetitive consequences. If no forcing is present, patients are free to enter a competing hospital and to use another anesthesiologist instead of Roux. [Footnote 41] The fact that petitioners' patients are required to purchase two separate items is only the beginning of the appropriate inquiry. [Footnote 42]
The question remains whether this arrangement involves the use of market power to force patients to buy services they would not otherwise purchase. Respondent's only basis for invoking the per se rule against tying, and thereby avoiding analysis of actual market conditions, is by relying on the preference of persons residing in Jefferson Parish to go to East Jefferson, the closest hospital. A preference of this kind, however, is not necessarily probative of significant market power.
Seventy percent of the patients residing in Jefferson Parish enter hospitals other than East Jefferson. 513 F.Supp. at 539. Thus, East Jefferson's "dominance" over persons residing in Jefferson Parish is far from overwhelming. [Footnote 43] The
fact that a substantial majority of the parish's residents elect not to enter East Jefferson means that the geographic data do not establish the kind of dominant market position that obviates the need for further inquiry into actual competitive conditions. The Court of Appeals acknowledged as much; it recognized that East Jefferson's market share alone was insufficient as a basis to infer market power, and buttressed its conclusion by relying on "market imperfections" [Footnote 44] that permit petitioners to charge noncompetitive prices for hospital services: the prevalence of third-party payment for health care costs reduces price competition, and a lack of adequate information renders consumers unable to evaluate the quality of the medical care provided by competing hospitals. 686 F.2d at 290. [Footnote 45] While these factors may generate "market power" in some abstract sense, [Footnote 46] they do not generate the kind of market power that justifies condemnation of tying.
Tying arrangements need only be condemned if they restrain competition on the merits by forcing purchases that would not otherwise be made. A lack of price or quality
competition does not create this type of forcing. If consumers lack price consciousness, that fact will not force them to take an anesthesiologist whose services they do not want -- their indifference to price will have no impact on their willingness or ability to go to another hospital where they can utilize the services of the anesthesiologist of their choice. Similarly, if consumers cannot evaluate the quality of anesthesiological services, it follows that they are indifferent between certified anesthesiologists even in the absence of a tying arrangement -- such an arrangement cannot be said to have foreclosed a choice that would have otherwise been made "on the merits."
Thus, neither of the "market imperfections" relied upon by the Court of Appeals forces consumers to take anesthesiological services they would not select in the absence of a tie. It is safe to assume that every patient undergoing a surgical operation needs the services of an anesthesiologist; at least this record contains no evidence that the hospital "forced" any such services on unwilling patients. [Footnote 47] The record therefore
does not provide a basis for applying the per se rule against tying to this arrangement.
In order to prevail in the absence of per se liability, respondent has the burden of proving that the Roux contract violated the Sherman Act because it unreasonably restrained competition. That burden necessarily involves an inquiry into the actual effect of the exclusive contract on competition among anesthesiologists. This competition takes place in a market that has not been defined. The market is not necessarily the same as the market in which hospitals compete in offering services to patients; it may encompass competition among anesthesiologists for exclusive contracts such as the Roux contract and might be statewide or merely local. [Footnote 48] There is, however, insufficient evidence in this record to provide a basis for finding that the Roux contract, as it actually operates in the market, has unreasonably restrained competition.
The record sheds little light on how this arrangement affected consumer demand for separate arrangements with a specific anesthesiologist. [Footnote 49] The evidence indicates that some surgeons and patients preferred respondent's services to those of Roux, but there is no evidence that any patient who was sophisticated enough to know the difference between two anesthesiologists was not also able to go to a hospital that would provide him with the anesthesiologist of his choice. [Footnote 50]
In sum, all that the record establishes is that the choice of anesthesiologists at East Jefferson has been limited to one of the four doctors who are associated with Roux and therefore have staff privileges. [Footnote 51] Even if Roux did not have an exclusive contract, the range of alternatives open to the patient would be severely limited by the nature of the transaction and the hospital's unquestioned right to exercise some control over the identity and the number of doctors to whom it accords staff privileges. If respondent is admitted to the staff of East Jefferson, the range of choice will be enlarged from
four to five doctors, but the most significant restraints on the patient's freedom to select a specific anesthesiologist will nevertheless remain. [Footnote 52] Without a showing of actual adverse effect on competition, respondent cannot make out a case under the antitrust laws, and no such showing has been made.
Petitioners' closed policy may raise questions of medical ethics [Footnote 53] and may have inconvenienced some patients who would prefer to have their anesthesia administered by someone other than a member of Roux & Associates, but it does not have the obviously unreasonable impact on purchasers that has characterized the tying arrangements that this Court has branded unlawful. There is no evidence that the price, the quality, or the supply or demand for either the "tying product" or the "tied product" involved in this case has been adversely affected by the exclusive contract between Roux and the hospital. It may well be true that the contract made it necessary for Dr. Hyde and others to practice elsewhere, rather than at East Jefferson. But there has been no showing that the market as a whole has been affected at all by the contract. Indeed, as we previously noted, the record tells us very little about the market for the services of anesthesiologists.
Yet that is the market in which the exclusive contract has had its principal impact. There is simply no showing here of the kind of restraint on competition that is prohibited by the Sherman Act. Accordingly, the judgment of the Court of Appeals is reversed, and the case is remanded to that court for further proceedings consistent with this opinion. [Footnote 54]
It is so ordered.
Section 1 of the Sherman Act states:
"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. . . ."
26 Stat. 209, as amended, 15 U.S.C. § 1. Respondent has standing to enforce § 1 by virtue of § 4 of the Clayton Act, 38 Stat. 731, as amended, 15 U.S.C. § 15.
In addition to seeking relief under the Sherman Act, respondent's complaint alleged violations of 42 U.S.C. § 1983 and state law. The District Court rejected these claims. The Court of Appeals passed only on the Sherman Act claim.
The contract required all of the physicians employed by Roux to confine their practice of anesthesiology to East Jefferson.
Originally Roux agreed to provide at least two full-time anesthesiologists acceptable to the hospital's credentials committee. Roux agreed to furnish additional anesthesiologists as necessary. The contract also provided that Roux would designate one of its qualified anesthesiologists to serve as the head of the hospital's department of anesthesia.
The fees for anesthesiological services are billed separately to the patients by the hospital. They cover the hospital's costs and the professional services provided by Roux. After a deduction of eight percent to provide a reserve for uncollectible accounts, the fees are divided equally between Roux and the hospital.
"Roux testified that he requested the omission of the exclusive language in his 1976 contract because he believes a surgeon or patient is entitled to the services of the anesthesiologist of his choice. He admitted that he and others in his group did work outside East Jefferson following the 1976 contract, but felt he was not in violation of the contract in light of the changes made in it."
513 F.Supp. 532, 537 (ED La.1981).
Approximately 875 operations are performed at the hospital each month; as many as 12 or 13 operating rooms may be in use at one time.
The District Court found:
"The impact on commerce resulting from the East Jefferson contract is minimal. The contract is restricted in effect to one hospital in an area containing at least twenty others providing the same surgical services. It would be a different situation if Dr. Roux had exclusive contracts in several hospitals in the relevant market. As pointed out by plaintiff, the majority of surgeons have privileges at more than one hospital in the area. They have the option of admitting their patients to another hospital where they can select the anesthesiologist of their choice. Similarly, a patient can go to another hospital if he is not satisfied with the physicians available at East Jefferson."
Id. at 541.
While the Court of Appeals did discuss the impact of the contract upon patients, it did not discuss its impact upon anesthesiologists. The District Court had referred to evidence that, in the entire State of Louisiana, there are 156 anesthesiologists and 345 hospitals with operating rooms. The record does not tell us how many of the hospitals in the New Orleans metropolitan area have "open" anesthesiology departments and how many have closed departments. Respondent, for example, practices with two other anesthesiologists at a hospital which has an open department; he previously practiced for several years in a different New Orleans hospital and, prior to that, had practiced in Florida. The record does not tell us whether there is a shortage or a surplus of anesthesiologists in any part of the country, or whether they are thriving or starving.
The Court of Appeals rejected as "clearly erroneous" the District Court's finding that the exclusive contract was justified by quality considerations. See 686 F.2d at 292.
"For example, where a complaint charges that the defendants have engaged in price fixing, or have concertedly refused to deal with nonmembers of an association, or have licensed a patented device on condition that unpatented materials be employed in conjunction with the patented device, then the amount of commerce involved is immaterial, because such restraints are illegal per se."
The District Court intimated that the principles of per se liability might not apply to cases involving the medical profession. 513 F.Supp. at 543-544. The Court of Appeals rejected this approach. 686 F.2d at 292-294. In this Court, petitioners "assume" that the same principles apply to the provision of professional services as apply to other trades or businesses. Brief for Petitioners 4, n. 2. See generally National Society of Professional Engineers v. United States,435 U. S. 679 (1978).
The roots of the doctrine date at least to Motion Picture Patents Co. v. Universal Film Co.,243 U. S. 502 (1917), a case holding that the sale of a patented film projector could not be conditioned on its use only with the patentee's films, since this would have the effect of extending the scope of the patent monopoly. See also Henry v. Dick Co.,224 U. S. 1, 224 U. S. 70-73 (1912) (White, C.J., dissenting).
See United States Steel Corp. v. Fortner Enterprises,429 U. S. 610, 429 U. S. 619-621 (1977); Fortner Enterprises v. United States Steel Corp.,394 U. S. 495, 394 U. S. 498-499 (1969); White Motor Co. v. United States,372 U. S. 253, 372 U. S. 262 (1963); Brown Shoe Co. v. United States,370 U. S. 294, 370 U. S. 330 (1962); United States v. Loew's Inc.,371 U. S. 38 (1962); Northern Pacific R. Co. v. United States,356 U. S. 1, 356 U. S. 5 (1958); Black v. Magnolia Liquor Co.,355 U. S. 24, 355 U. S. 25 (1957); Times-Picayune Publishing Co. v. United States,345 U. S. 594, 345 U. S. 608-609 (1953); Standard Oil Co. of California v. United States,337 U. S. 293, 337 U. S. 305-306(1949).
See also 51 Cong.Rec. 9072 (1914) (remarks of Rep. Webb); id. at 9084 (remarks of Rep. Madden); id. at 9090 (remarks of Rep. Mitchell); id. at 9160-9164 (remarks of Rep. Floyd); id. at 9184-9185 (remarks of Rep. Helvering); id. at 9409 (remarks of Rep. Gardner); id. at 9410 (remarks of Rep. Mitchell); id. at 9553-9554 (remarks of Rep. Barkley); id. at 14091-14097 (remarks of Sen. Reed); id. at 14094 (remarks of Sen. Walsh); id. at 14209 (remarks of Sen. Shields); id. at 14226 (remarks of Sen. Reed); id. at 14268 (remarks of Sen. Reed); id. at 14599 (remarks of Sen. White); id. at 15991 (remarks of Sen. Martine); id. at 16146 (remarks of Sen. Walsh); Spivack, The Chicago School Approach to Single Firm Exercises of Monopoly Power: A Response, 52 Antitrust L.J. 651, 664-665 (1983). For example, the House Report on the Clayton Act stated:
"The public is compelled to pay a higher price and local customers are put to the inconvenience of securing many commodities in other communities or through mail-order houses that can not be procured at their local stores. The price is raised as an inducement. This is the local effect. Where the concern making these contracts is already great and powerful, such as the United Shoe Machinery Co., the American Tobacco Co., and the General Film Co., the exclusive or 'tying' contract made with local dealers becomes one of the greatest agencies and instrumentalities of monopoly ever devised by the brain of man. It completely shuts out competitors, not only from trade in which they are already engaged, but from the opportunities to build up trade in any community where these great and powerful combinations are operating under this system and practice. By this method and practice, the Shoe Machinery Co. has built up a monopoly that owns and controls the entire machinery now being used by all great shoe-manufacturing houses of the United States. No independent manufacturer of shoe machines has the slightest opportunity to build up any considerable trade in this country while this condition obtains. If a manufacturer who is using machines of the Shoe Machinery Co. were to purchase and place a machine manufactured by any independent company in his establishment, the Shoe Machinery Co. could, under its contracts, withdraw all their machinery from the establishment of the shoe manufacturer and thereby wreck the business of the manufacturer. The General Film Co., by the same method practiced by the Shoe Machinery Co. under the lease system, has practically destroyed all competition and acquired a virtual monopoly of all films manufactured and sold in the United States. When we consider contracts of sales made under this system, the result to the consumer, the general public, and the local dealer and his business is even worse than under the lease system."
H.R.Rep. No. 627, 63d Cong., 2d Sess., 12-13 (1914).
Similarly, Representative Mitchell said:
"[M]onopoly has been built up by these 'tying' contracts so that, in order to get one machine, one must take all of the essential machines, or practically all. Independent companies who have sought to enter the field have found that the markets have been preempted. . . . The manufacturers do not want to break their contracts with these giant monopolies, because, if they should attempt to install machinery, their business might be jeopardized and all of the machinery now leased by these giant monopolies would be removed from their places of business. No situation cries more urgently for relief than does this situation, and this bill seeks to prevent exclusive 'tying' contracts that have brought about a monopoly, alike injurious to the small dealers, to the manufacturers, and grossly unfair to those who seek to enter the field of competition and to the millions of consumers."
51 Cong.Rec. 9090 (1914).
"Of course, where the buyer is free to take either product by , there is no tying problem even though the seller may also offer the two items as a unit at a single price."
Northern Pacific R. Co. v. United States, 356 U.S. at 356 U. S. 6, n. 4.
Thus, we have held that a seller who ties the sale of houses to the provision of credit simply as a way of effectively competing in a competitive market does not violate the antitrust laws.
"The unusual credit bargain offered to Fortner proves nothing more than a willingness to provide cheap financing in order to sell expensive houses."
United States Steel Corp. v. Fortner Enterprises, 429 U.S. at 429 U. S. 622 (footnote omitted).
Accord, Fortner I, 394 U.S. at 394 U. S. 508-509; Atlantic Refining Co. v. FTC,381 U. S. 357, 381 U. S. 369-371 (1965); United States v. Loew's Inc., 371 U.S. at 371 U. S. 44-45; Northern Pacific R. Co. v. United States, 356 U.S. at 356 U. S. 6. For example, JUSTICE WHITE has written:
"There is general agreement in the cases and among commentators that the fundamental restraint against which the tying proscription is meant to guard is the use of power over one product to attain power over another, or otherwise to distort freedom of trade and competition in the second product. This distortion injures the buyers of the second product, who, because of their preference for the seller's brand of the first, are artificially forced to make a less than optimal choice in the second. And even if the customer is indifferent among brands of the second product, and therefore loses nothing by agreeing to use the seller's brand of the second in order to get his brand of the first, such tying agreements may work significant restraints on competition in the tied product. The tying seller may be working toward a monopoly position in the tied product and, even if he is not, the practice of tying forecloses other sellers of the tied product and makes it more difficult for new firms to enter that market. They must be prepared not only to match existing sellers of the tied product in price and quality, but to offset the attraction of the tying product itself. Even if this is possible through simultaneous entry into production of the tying product, entry into both markets is significantly more expensive than simple entry into the tied market, and shifting buying habits in the tied product is considerably more cumbersome and less responsive to variations in competitive offers. In addition to these anticompetitive effects in the tied product, tying arrangements may be used to evade price control in the tying product through clandestine transfer of the profit to the tied product; they may be used as a counting device to effect price discrimination; and they may be used to force a full line of products on the customer so as to extract more easily from him a monopoly return on one unique product in the line."
Fortner I, 394 U.S. at 394 U. S. 512-514 (dissenting opinion) (footnotes omitted).
This type of market power has sometimes been referred to as "leverage." Professors Areeda and Turner provide a definition that suits present purposes.
"'Leverage' is loosely defined here as a supplier's power to induce his customer for one product to buy a second product from him that would not otherwise be purchased solely on the merit of that second product."
5 P. Areeda & D. Turner, Antitrust Law