## Facts

- Cascade Health Solutions operated a single nonprofit hospital in Lane County, Oregon, providing primary and secondary acute-care services.
- PeaceHealth operated three nonprofit hospitals in the same county, providing primary, secondary, and tertiary services, and held dominant market shares (about 75% in primary/secondary acute care and over 90% in tertiary care).
- PeaceHealth contracted with insurers using bundled-discount arrangements: insurers received substantial discounts (particularly tied to tertiary services) if they designated PeaceHealth as the sole or preferred provider for hospital services across service levels.
- Cascade alleged it could underprice PeaceHealth on primary/secondary services but could not match the bundle because it lacked tertiary services; insurers allegedly could not forego PeaceHealth’s tertiary services and therefore faced higher effective costs if they contracted separately with Cascade.
- Cascade sued under federal antitrust law, including Sherman Act § 2 theories; the district court granted summary judgment for PeaceHealth on tying, and the remaining claims went to a jury.
- The jury found for PeaceHealth on monopolization, conspiracy to monopolize, and exclusive dealing, but found liability and awarded damages on an attempted-monopolization theory based on bundled discounts.
- PeaceHealth appealed the attempted-monopolization verdict and challenged the jury instructions; Cascade cross-appealed on other issues.

## Issues

1. What legal standard governs when bundled discounts by a firm with market power constitute exclusionary conduct under Sherman Act § 2.
2. Whether a § 2 attempted-monopolization verdict based on bundled discounts requires proof that, after attributing the full discount to the competitive product, the resulting price is below an appropriate measure of cost.
3. Whether the jury instructions and verdict on attempted monopolization could stand absent that below-cost requirement.

## Decision

- The Ninth Circuit adopted a cost-based “discount attribution” test for evaluating bundled discounts under Sherman Act § 2.
- The court held the district court’s attempted-monopolization jury instructions were legally erroneous because they did not require a finding that the imputed price of the competitive product, after attributing the entire discount, was below cost.
- The court vacated the attempted-monopolization verdict and damages award and remanded for further proceedings under the proper standard.
- The court left in place the district court’s summary judgment for PeaceHealth on tying and did not disturb the defense verdicts on the other tried antitrust theories.

## Legal Principles

- Bundled discounts are generally lawful price competition under Sherman Act § 2 unless they meet a cost-based threshold showing exclusionary pricing.
- Discount-attribution test: allocate the entire dollar value of the bundle discount to the competitive product(s); if the resulting imputed price for the competitive product is below an appropriate measure of the defendant’s cost (often framed as incremental cost), the bundled discount may be exclusionary.
- Above-cost bundled discounts fall within a practical safe harbor because condemning them risks deterring price cutting that benefits consumers.
- A § 2 attempted-monopolization claim based on bundled discounts must still satisfy the remaining elements (including specific intent and dangerous probability of monopolization), but price-based exclusion requires the below-cost showing under the discount-attribution framework.
- Jury instructions permitting liability for bundled discounts without the discount-attribution/below-cost inquiry are insufficient as a matter of law.

## Conclusion

The Ninth Circuit required a cost-based approach to § 2 challenges to bundled discounts, holding that liability depends on whether the defendant’s imputed price for the competitive product—after assigning the full bundle discount to that product—falls below cost; because the jury was not instructed to make that finding, the attempted-monopolization verdict was vacated and remanded.


Cascade Health Sols. v. PeaceHealth, 502 F.3d 895 (9th Cir. 2007)