PRODUCT TYING AND BUNDLING: WHEN IS IT ILLEGAL UNDER US ANTITRUST LAW?
Tying’ is when a seller conditions the sale of one product on the purchase of another product. The ‘tying’ product is the product that customers really want or need. The ‘tied’ product is the less desirable product.
Take an example. Suppose a manufacturer, Ploughs ‘R’ Us, makes a plough. This plough is unique because it allows farmers to harvest the hottest new vegetable, DragonSquash. This is the only plough on the market that can harvest this vegetable. Now suppose that Ploughs R Us will only sell its DragonSquash Plough to customers who also purchase its Corn Plough. The Corn Plough is nothing special; many competitors make similar ploughs. Here, a plaintiff may argue that Ploughs ‘R’ Us is engaged in product tying: it is arguably exploiting its market dominance over DragonSquash Ploughs (the ‘tying’ product) to sell more Corn Ploughs (the ‘tied’ product).
Product bundling is similar. Product bundling does not require that customers purchase two products together as a formal condition of purchase. Instead, it involves discounts that make it more attractive for customers to do so. An example would be Ploughs “R” Us offering a deep discount if customers purchase both a DragonSquash Plough and a Corn Plough.
What is the issue?
When do tying and bundling arrangements like this violate the US Sherman Antitrust Act? The answer depends on the jurisdiction and a number of different factors. Typically, a plaintiff stands to recover treble damages for unlawful tying and bundling under the Sherman Act upon proof of some version of the following: (i) the existence of two distinct products; (ii) the sale of one product that is – either formally or practically – conditioned on the purchase of another product; (iii) significant market power in the market for the tying product; and (iv) an effect on a ‘not insubstantial’ volume of commerce.
Jan-Mar 2023 issue
Goldman Ismail Tomaselli Brennan & Baum LLP