## Facts

- PolyGram distributed the 1990 “Three Tenors” concert recording; Warner distributed the 1994 recording; both were successful classical titles.
- In late 1997, PolyGram and Warner formed a joint venture to distribute the 1998 “Three Tenors” concert recording, allocating U.S. rights to Warner and non-U.S. rights to PolyGram while sharing worldwide profits/losses and coordinating marketing.
- The joint-venture agreement originally permitted each company to continue exploiting its earlier “Three Tenors” albums without restriction.
- Shortly before releasing the 1998 recording, PolyGram and Warner agreed to a ten-week “moratorium” suspending advertising and discounting of the 1990 and 1994 recordings.
- The moratorium aimed to prevent the older titles from reducing sales of the new 1998 joint-venture release by limiting price and promotional competition on the legacy products.
- The FTC brought an administrative action alleging an unlawful horizontal agreement to restrict price discounting and advertising in violation of § 5 of the FTC Act.
- An ALJ found the joint venture lawful but held the moratorium unlawfully reduced competition; the FTC affirmed and issued a cease-and-desist order barring agreements with competitors to fix prices or restrict advertising of independently produced products.
- PolyGram petitioned for review in the D.C. Circuit.

## Issues

1. Whether the ten-week moratorium on advertising and discounting the independently distributed 1990 and 1994 recordings was an unreasonable restraint of trade prohibited by § 5 of the FTC Act.
2. Whether the FTC permissibly treated the moratorium as “inherently suspect” (presumptively unlawful) rather than requiring a full rule-of-reason analysis.
3. Whether PolyGram rebutted the presumption of unlawfulness by showing the moratorium was reasonably necessary to achieve procompetitive benefits of the 1998 joint venture.

## Decision

- The D.C. Circuit denied PolyGram’s petition for review and affirmed the FTC’s order.
- The court upheld the FTC’s use of an “inherently suspect” (truncated) framework for the moratorium, treating it as presumptively unlawful.
- The court concluded PolyGram failed to justify the restraint with non-speculative efficiencies or to show the restraint was reasonably necessary to the joint venture’s operation.
- The cease-and-desist order barring agreements with competitors to fix prices or restrict advertising of independently produced products was sustained.

## Legal Principles

- A horizontal agreement between competitors to restrict discounting or advertising of products they separately produce and sell may be treated as “inherently suspect,” shifting the burden to the defendants to offer a plausible efficiency justification.
- Truncated (quick-look) analysis is appropriate when experience and economic logic indicate the restraint likely reduces competition and output, and the restraint has limited apparent efficiency potential absent substantiation.
- An ancillary restraint to a lawful joint venture is lawful only if it is subordinate to the venture and reasonably necessary to achieving the venture’s procompetitive benefits.
- Speculative claims of preventing “cannibalization” do not rebut a presumption of illegality without evidence of cognizable efficiencies and a showing that less restrictive alternatives would not achieve the same benefits.
- Conduct reached under § 5 of the FTC Act may be evaluated using established antitrust principles for horizontal restraints, including burden-shifting approaches tied to competitive effects and justifications.

## Conclusion

The court upheld the FTC’s finding that PolyGram and Warner’s moratorium on advertising and discounting legacy “Three Tenors” recordings was presumptively unlawful horizontal coordination not justified as reasonably necessary to their lawful joint venture, and it affirmed the FTC’s cease-and-desist order.


Polygram Holding, Inc. v. Fed. Trade Comm'n, 416 F.3d 29 (D.C. Cir. 2005)