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Introduction to Antitrust Law
Antitrust law concerns the regulation of certain business practices that result in lower levels of competition among businesses in the market. A lower level of competition in a given market is generally understood to be detrimental to consumer interests. It can cause higher prices and shortages in supply or availability of products. This chapter introduces antitrust law and the primary federal statutes providing consumer protections. It then examines the various types of conduct or situations that are deemed illegal under these laws. For further written and video explanation, discussion and practice questions, see Antitrust Law (Intro)
What is “Antitrust Law”?
“Antitrust laws” are a combination of federal and state laws that seek to promote competition among businesses (both large and small). Competition among businesses benefits consumers, as businesses compete by providing better or more goods and services at lower prices. In pursuit of growth and efficiency, business competitors often attempt to share some activities or join together in the performance of business functions. Many types of concerted efforts among competitors are perfectly legal, while others are prohibited by law and can lead to the severe sanctions. Concerted activities, such as sharing of resources and information, are often beneficial to society even though they reduce competition. The question or legality focuses on whether consumers suffer a detriment from the activity. This area of law gained the name antitrust based upon historical practices by businesses employing trusts to monopolize industries and thwart competition. Basically, individuals or companies would set up trusts that they controlled to hold a controlling ownership interest in multiple industry competitors. In this way, a single individual or group of individuals could effectively exercise control over an entire industry and thereby diminish competition. The federal and state governments began passing laws to break up these holding trusts. As such, the name of such laws became antitrust laws. For further written and video explanation, discussion and practice questions, see What is "antitrust law"?
Major Antitrust Laws
Since the inception of antitrust law, the Federal Government has passed three sweeping antitrust laws: The Sherman Act of 1890; The Clayton Act of 1914; and The Federal Trade Commission Act of 1914. These acts still provide the primary sources of antitrust law effective today. They have been subject to amendment and are the source of an extensive web of regulations used to effectuate these statutes. They provide for both civil and criminal penalties for violations. For further written and video explanation, discussion and practice questions, see What are the Major Antitrust Laws?
Government Agencies Enforce Antitrust Law
The Federal Trade Commission (FTC) is an independent federal agency primarily charged with developing regulations and preventing violations of the federal antitrust laws. The objective of the FTC is to protect consumers by preventing anticompetitive business practices. In pursuit of this objective, the FTC has broad authority to determine what constitutes unfair competition in the market. The FTC issues trade regulations that apply broadly across industries and trade practice rules that guide businesses operating in specific industries. While compliance with FTC practice rules is voluntary, it provides a safe harbor in the event of FTC inquiry into a business’s practices. In the Sherman Act, Congress broadly defined “unfair” methods of competition to allow administrative agency and federal court interpretation to add specificity. Generally, the FTC makes the determination of what it deems to be “unfair”. If there is no deception or obvious antitrust violation, the FTC asks three questions, any of which may lead to a finding of unfairness: Does the conduct injure consumers significantly? Does the conduct offend an established public policy? Is the conduct oppressive, unscrupulous, immoral, or unethical? The FTC has the authority to regulate and take enforcement action against any business for conduct that it deems to be unfair. This may include coordinating efforts with the Department of Justice if the FTC encounters business activity that violates criminal laws. For further written and video explanation, discussion and practice questions, see What government agency enforces antitrust law?
Sherman Act of 1890
The Sherman Act was the first major federal law passed with the purpose of ensuring competition across and within industries. At the time of its passage, several large companies had nearly complete control over certain industries (steel, oil, and railway) very important to the development of the United States. The effect of this lack of competition was to create exorbitant wealth in a few individuals and higher prices for consumers. The high price to consumers reduced consumption and resulted in lower total economic output. In response to this reality, Congress passed the Sherman Act, which seeks to preserve competition by prohibiting two types of anticompetitive business behavior: Section 1 - Contracts, combinations, or conspiracies in restraint of trade or commerce, and Section 2 - Monopolies and attempts to monopolize. The Sherman Act fails to define what is a contract, combination, or conspiracy in restrain of trade or a monopoly. As such, much of antitrust law is based in the common law interpretation of federal courts. For further written and video explanation, discussion and practice questions, see What is the "Sherman Act of 1890" (Sherman Act)?
Clayton Act of 1914
The Clayton Act is an antitrust law passed to protect consumers by providing a means of preventing early-stage anticompetitive practices. It has a specific focus on the sale of commodities. The Clayton Act is more specific in identifying anticompetitive conduct than is the Sherman Act. It also creates exemptions for certain industries or businesses and establishes an enforcement mechanism to remedy violations of the Act. A notable aspect of the Clayton Act is that it prohibits conduct that does not presently amount to an injury to consumers but has the tendency to lead to consumer injury. In this way, the Act focused on regulating conduct to prevent harm from occurring. For further written and video explanation, discussion and practice questions, see What is the "Clayton Act of 1914" (Clayton Act)?
Federal Trade Commission Act of 1914
In 1914, the same year that the Clayton Act passed, Congress passed the Federal Trade Commission Act (FTC Act). This act created the Federal Trade Commission, which is an independent administrative agency charged with consumer protection. The FTC bears primary responsibility for enforcing the Sherman Act, Clayton Act, and the regulatory provisions of the FTC Act itself. The FTC pursues civil remedies, while the Department of Justice enforces the criminal (and some civil) provisions of the antitrust laws. State governments and private parties also have the ability to bring civil actions under the antitrust laws seeking civil damages or injunctions. For further written and video explanation, discussion and practice questions, see What is the "Federal Trade Commission Act of 1914"?
“Contract, Combination, or Conspiracy” restraining trade
Section 1 of the Sherman Act prohibits “contracts, combinations, and conspiracies in restraint of trade or commerce”, but it does not define these types of agreements. Common law surrounding the Sherman Act identifies numerous forms of concerted actions between market competitors or members of the value chain that have the intent or effect of restraining trade in the relevant product or service market. These relationships are generally broken into “vertical restraints” and “horizontal restraints” of trade. The various types of vertical and horizontal trade are discussed individually. For further written and video explanation, discussion and practice questions, see What is a "Contract, Combination, or Conspiracy" in restraint of trade?
“Per Se Illegality” and the “Rule of Reason”
Section 1 of the Sherman Act broadly prohibits actions that in some way restrain trade. If an action is determined to be a restraint of trade, the following standards apply to determine whether the arrangement is illegal: Per Se Illegal - A “naked restraint” of trade is one that is explicitly anticompetitive, such as an agreement controlling the price of a good or the output from production. A naked restraint with no pro-competitive justification is generally held to be per se illegal. That is, these practices are, by their nature, anticompetitive and thus per se illegal. A court will not evaluate any alleged pro-competitive justifications for such activity. Rule of Reason - The rule of reason applies to a restraint that is not deemed a naked restraint. Per Section 1, “every contract, combination, or conspiracy” is illegal if it constitutes undue or “unreasonable” restraint of trade. The test for reasonableness concerns whether the challenged contracts or acts unreasonably restrict competitive conditions in the market or industry. Unreasonableness can be based upon the nature or character of the agreement or surrounding circumstances. The rule of reason balances pro-competitive and anti-competitive effects. In determining whether a restraint of trade is reasonable, the court would consider: facts peculiar to this business; actual and probable effects of restraint (including the effect on competitors); history of the restraint; purpose of restraint; scope of the restraint; convenience to suppliers and consumers; and creation of new products. In essence, if the activity promotes competition, it may justify the anticompetitive aspects. Quick-Look (or Truncated) Rule of Reason - This is a test employed by the court in very limited circumstances. It is feasible that a naked restraint may be legal if there is a pro-competitive justification. Under the quick-look test, a court will allow a defendant to introduce evidence that conduct that would otherwise be per se illegal has a pro-competitive aspect. If a pro-competitive justification is plausible, the court will employ a full rule-of-reason analysis. For further written and video explanation, discussion and practice questions, see What is "per se illegality" and the "rule of reason"?
What is a “Monopoly”?
Section 2 of the Sherman Act regulates monopolies or conspiracies or attempts to monopolize any part of interstate or foreign commerce. It is directed at single firms and does not purport to cover shared monopolies or oligopolies. Monopoly - In US v. Grinnel Corp, the federal court defined a monopoly as, "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” “Monopoly power” is generally understood to mean “the power to control prices or exclude competition”. The “relevant market” is determined by the geographic area where the product or service is sold, either by the subject party or competitors. Section 2 focuses on acquiring the monopoly through improper means. There must be some anticompetitive conduct, such as exclusionary or predatory practices. Attempts to monopolize - In Spectrum Sports, Inc. v. McQuillan, the court held that an attempt to monopoly requires proof "(1) that the defendant has engaged in predatory or anticompetitive conduct, (2) with a specific intent to monopolize, and (3) a dangerous probability of achieving monopoly power.” The attempt does not have be successful. It is sufficient that there was intent and a dangerous probability of success exists. For conduct to have a dangerous probability of resulting in a monopoly, a court will evaluate the market or industry and the relative power of the business. The same activity by different firms may be illegal based upon the probability of their conduct resulting in monopoly power. Conspiracy - Conspiracy to monopolize requires an agreement between two or more parties with the specific intent of acquiring monopoly power. Following the agreement, it requires at least one overt act to accomplish the objectives. Unlike a cause of action for attempt, an actual ability to achieve a monopoly or a show of power is not required. Often a business will develop monopoly power through a competitive advantage (such as a differentiation or cost strategy). It is important to emphasize that, without the intent to eliminate competition and secure monopoly power, this conduct is not illegal. A business that acquires monopoly power, however, must avoid suppressing competition from potential or existing competitors. Such conduct may constitute an attempt to maintain or extend monopoly power. For further written and video explanation, discussion and practice questions, see What is a "Monopoly"?
Businesses Exempt from Sherman Act
Businesses in certain industries may be exempt from some of the antitrust provisions of the Sherman Act. These businesses do not receive a blanket exemption; rather, they receive specific exemptions for certain practices or activities. Examples of exempted businesses include: State Action Exemption - State actors (or state-owned entities) are exempt from Sherman Act regulations. This is known as the “Parker v. Brown Doctrine”. The key is that the state entity must be acting in its sovereign capacity. Lobbying Exemption - Efforts to lobby government officials is exempt from antitrust regulation, despite the anticompetitive purpose and potential effect. This is known as the “Noerr-Pennington Doctrine”. The justification for this exemption is that regulation of lobbying activity may violate an individual’s First Amendment rights to petition the government for redress of a grievance. This doctrine extends First Amendment protections to these business organizations. Patent Law (or Trademark Law) - Grants of intellectual property rights are exempt from the Sherman Act. For example, awarding the creator of a patented item is a limited form of monopoly granted in that item. For further written and video explanation, discussion and practice questions, see What businesses are exempt from the Sherman Act?
“Horizontal Restraint of Trade” under Sherman Act
While there are several established types of horizontal restraint, any situation that meets the following elements may be illegal. Agreement - Was there an agreement between or among market participants? Restraint - Was there an identifiable restraint of trade? If so, was the restraint: Naked with no pro-competitive justification? If so, it is per se illegal. Naked with a pro-competitive justification? Then apply the quick-look rule of reason. Not a naked restraint? Then the rule of reason applies. Remember, there is no requirement that a business have extensive market power for conduct to be illegal under § 1. For further written and video explanation, discussion and practice questions, see What is "horizontal restraint" of trade under the Sherman Act?
Sharing Information – Horizontal Restraint
Sharing Information - Under the Sherman Act § 1, sharing of information among competitors with the purpose of restraining trade (i.e., a naked restraint of trade) is per se illegal. So, the question of whether information sharing is illegal turns primarily upon whether there is some way the information sharing is or could be harmful to competition and restrain trade. If no, the practice is not a naked restraint and therefore not per se illegal. As such, a court will generally apply the rule of reason and look at the actual effect of the sharing activity. Factors used in determining whether information sharing is harmful may include the: Nature of the Information - Were the parties are sharing future, present, or past information? Actions taken by Either Party - Was there any enforcement of the sharing relationship by either party, monitoring of another party’s activity, or coercive mechanisms involved with the sharing of information? Availability of Information - Was the information available to insiders, publicly available, or available at a reasonable cost? Market Structure - Is the market concentrated to the point that sharing between the parties looks like collusion? If the pro-competitive justifications outweigh the anti-competitive aspects of the activity, it may not violate the Sherman Act. For further written and video explanation, discussion and practice questions, see "Sharing information"?
Refusal to Deal – Horizontal Restraint
Refusal to Deal - Under the Sherman Act § 1, refusals to deal with or boycotts of market participants can be illegal as horizontal restraints of trade. This may be the case when the refusal has anti-competitive aspects but no pro-competitive justification. If the refusal to deal is not a pure restraint of trade, a court would use the rule of reason to determine whether a sufficient restraint of trade is present to make the conduct illegal. The greater the amount of commerce involved in the boycott situation, the more likely it is to be an illegal restraint of trade. For further written and video explanation, discussion and practice questions, see "Refusal to deal"?
Territorial Agreement – Horizontal Restraint
Horizontal Territorial Agreements - Under the Sherman Act § 1, a territorial agreement that allocates geographical areas among competitors may be a horizontal restraint of trade. In a horizontal territorial agreement, competing businesses enter into an agreement not to compete with or infringe upon another competitor within an exclusive geographic territory. The agreement not to compete is generally a naked restraint of trade that has no pro-competitive justification. As such, it is per se illegal under the Sherman Act. For further written and video explanation, discussion and practice questions, see "Territorial agreement"?
Price Fixing – Horizontal Restraint
Horizontal Price Fixing - Under the Sherman Act § 1, an agreement among competitors to establish a fixed price among all producers or sellers of goods or services is a horizontal restraint of trade. This type of naked restraint on trade is a purely anticompetitive and is per se illegal. Businesses may develop all sorts of arrangements to control the ultimate price of a good or service. It does not matter if the fixed prices are fair or reasonable. The anticompetitive aspects of agreeing on a price detriments consumers. This is true even when small competitors agree not to compete in an attempt to remain competitive in a market with larger competitors. (Note: The purpose of increasing the number of competitors in the market does not justify the restraint on trade and the detriment to consumers.) Further, an agreement among competitors to undertake efforts to stabilize a price that otherwise fluctuates is per se anticompetitive. For further written and video explanation, discussion and practice questions, see "Price fixing"?
Resale Restraint – Vertical Restraint
Vertical restraint is an arrangement or agreement between members of a supply chain (such as manufacturers, wholesalers, distributors, or retailers) to fix the price or supply of goods. The following are common types of vertical restraint: Resale Restraint (Vertical Price Fixing & Price Maintenance) - Under the Sherman Act § 1, an agreement among manufacturers or distributors of a product to control the retail price for a product is an illegal restraint of trade. A manufacturer controlling the final price of a product is known as “vertical price fixing”. A manufacturer controlling the maximum price at which distributors can resale a product is known as “price maintenance”. Both of these types of agreements have a tendency to reduce competition and harm consumers. Vertical price fixing involving an agreement among competitors is a naked restraint of trade and is per se illegal. Resale price maintenance, on the other hand, is not generally considered a naked restraint of trade. As such, a court examining such a relationship will apply the rule of reason to determine if the restraint is anticompetitive and therefore illegal. For further written and video explanation, discussion and practice questions, see "Resale restraint"?
Exclusive Dealing – Vertical Restraint
Exclusive Dealing - Under the Sherman Act § 1, as well as § 3 of the Clayton Act, exclusive dealing agreements between suppliers and manufacturers can be anticompetitive vertical restraints on trade. In a typical exclusive dealing arrangement, a seller requires that a buyer of a product only purchase that product from that seller. These agreements are essentially requirements contracts. The primary concern is that manufacturers are foreclosed from entering the market due to these exclusive dealing relationships with established manufacturers. This is not generally considered a naked restraint on trade. As such, a court would evaluate such an agreement under the rule of reason and examine its pro-competitive justifications. For further written and video explanation, discussion and practice questions, see "Exclusive dealing"?
Tying Products – Vertical Restraint
Tying - Under the Sherman Act § 1, as well as § 3 of the Clayton Act, tying the purchase of one product to the purchase of another competitor’s product may be anticompetitive and a restraint of trade. Tying, in its most basic form, is when a seller requires that a buyer agree that if seller sells product A, the buyer can only buy product B from the seller (or another identified seller). In order to be illegal, this practice must have a substantial impact on trade or commerce. To have a substantial effect on trade, a seller must generally hold substantial market power. As such, a tying arrangement must generally have the following elements: 2 or More Products - The sale of one product, the tying product, is tied to the buyer also purchasing a separate product - the tied product. Coercion - Buyers are coerced by the tying relationship to purchase the tied product. Market Power - The defendant must have substantial market power in the tying product. Commercial Impact - The tying arrangement forecloses a substantial volume of commerce in the tied product (affects competition). Tying situations are very common when a company sells an industry-leading product and also sells accessories to that product.Tying arrangements are generally not considered a naked restraint of trade. If the above elements are present, a court will examine to see if there are any pro-competitive justifications for tying. Examples of pro-competitive justifications include: Product Quality - The seller may claim that selling the products together ensures functionality or quality of operation. This argument may be effective when operational effective relates to the company’s brand or strategic position. Single Product - A seller may be able to demonstrate that the two items should be treated as one single product. For example, it is sensical for a car manufacturer to include wheels and tires on a vehicle when selling it to dealers. For further written and video explanation, discussion and practice questions, see "Tying products"?
Territorial Agreements – Vertical Restraint
Vertical Territorial Agreements - A vertical territorial agreement is an agreement between a manufacturer and a distributor of a product that grants an exclusive territory in which to distribute the product. The manufacturer agrees not to sell to other distributors in that territory in exchange for the dealer agreeing not to operate outside of her assigned area. These types of arrangements are very common and are not naked restraints on trade. If, however, such an agreement has the effect of restraining trade in the area, it may be illegal. If such actions are challenged, a court will apply the rule of reason in determining whether the conduct is sufficiently anticompetitive to constitute an illegal restraint on trade. For further written and video explanation, discussion and practice questions, see "Territorial agreements"?
Monopolization under the Sherman Act
The Sherman Act § 2 makes illegal the willful acquisition or maintenance of monopoly power in a relevant market when such power is the result of something other than pure competition. Simply possessing monopoly power is fine if such power results from a superior product, better processes, stronger business acumen, or other form of competitive advantage. Obtaining such market power is illegal when it is the result of some act or series of actions that have an anticompetitive effect in the market. Below are some common examples of monopoly power obtained through anticompetitive means: Exclusionary Act - Monopoly power obtained through an exclusionary act is prohibited. If a competitor undertakes an anticompetitive act that harms the competitive process in the market (not just a single competitor in the market), that act is illegal. Examples of anticompetitive, exclusionary acts may include: Closing of Resources - Buying up raw materials (especially if you do not need them) to the exclusion of other competitors; Exclusive Sales Agreements - Enforcing agreements with suppliers requiring them not to sell to your competitors: Tying Relationships - Tying the sale of one product to the purchase of a separate product; Forced Acquisition - Forcing a competitor to sell its business to you to eliminate competition; Mandatory Leasing - Requiring long-term leases or foreclosing a secondary market by leasing and not selling a product are examples of exclusionary acts. The acquisition of monopoly power will be reviewed pursuant to the rule of reason. If a court determines that an anticompetitive effect exists, the defendant may offer a pro-competitive justification for the activity. Refusing to Deal - Acquiring monopoly power in a market may be illegal under Sherman Act § 2 if such power is obtained through refusal to deal with competitors. Generally, there is no duty for a competitor to deal with other competitors. There are, however, exceptions to this rule when a refusal to deal has no valid business justification and the refusal is economically harmful to market competition in the long run. Generally, the refusal must be part of a scheme intended to result in increased market power for the company. Predatory Pricing - Predatory pricing exists where one competitor prices a product arbitrarily low in an effort to monopolize a market. The low price is used to force competitors out of the market. The Sherman Act § 2 makes such conduct illegal per se. Proving a predatory pricing case requires a demonstration of a competitor’s predatory pricing purpose and the dangerous probability that the competitor will recoup those loses by raising prices after other firms are driven out of the market. For further written and video explanation, discussion and practice questions, see What is "Monopolization" under the Sherman Act?
Price Discrimination – Clayton Act
Price discrimination under the Clayton Act means charging a different price for a commodity based upon something other than quality, quantity, or cost of selling. The Robinson-Patman Act, an amendment to the Clayton Act § 2, addressed the issue of a seller charging purchasers of commodities different prices. This practice can be anticompetitive when the price is below costs and gives one customer a competitive edge in the market that is not related to operational superiority. A claim under the Robinson-Patman Act must meet the following requirements: Commodities - It involves the purchase of commodities. Like Kind & Quality - The commodities must be effectively the same. Injury to Competition - There must be some effect on the market (interstate commerce), in either: Primary line - The reduction of prices for a buyer in a specific region causes an injury to competitors in that market. Secondary Line - Buyers who are customers of a seller’s supplier receive a particular discount. This rule protects smaller buyers who cannot secure the advantages of larger buyers. Ensuring equal prices for resellers of commodities promotes competition. Specifically prohibited conduct includes: Section 2(c) - limits brokerage commissions related to the sale of goods. Section 2(d) - outlaws granting promotional allowances or payments on good bought for resale, unless such allowances are available to all competing customers. Section 2(e) - prohibits giving promotional facilities or services on goods bought for resale, unless they are made available to all competing customers. The statute also makes predatory pricing illegal outside of the context of Sherman Act § 2, which primarily covers pricing below marginal cost for a prolonged period to drive out competition. The Clayton Act does allow for defenses to or justifications for price discrimination, including: Cost Justification - Price differentials based on differences in the cost of manufacture, sale, or delivery of commodities are permitted. Good-faith Defense - A seller in good faith may meet the equally low price of a competitor. Either of these defenses are a pro-competitive justification that might outweigh the restraints placed on competition. For further written and video explanation, discussion and practice questions, see What is "price discrimination" under the Clayton Act?
Special Arrangements – Clayton Act
Section 3 of the Clayton Act limits the use of certain types of contracts involving goods when the impact of these contracts may substantially lessen competition or tend to create a monopoly. These contracts may be per se illegal if monopolistic behavior is present. Examples of contractual arrangements that may tend to lessen competition or create a monopoly include: Exclusivity Contracts - Many supply contracts, requirements contracts, and exclusive dealing agreements are per se illegal. The primary concern is that manufacturers are foreclosed from entering the market due to these exclusive dealing relationships with established suppliers (and vice versa). The Clayton Act § 3 only applies to situation when a seller requires a buyer to only purchase from it or another seller. It generally does not apply to situation when a buyer requires that a seller refrain from selling to other buyers. This situation may, however, violate Sherman Act § 1. Legality turns on the question of whether the activity substantially lessens competition. To make this determination, the court will look at: Line of Commerce - Does this activity prevent competitors for achieving a sustainable size? If economies of scale do not require competitors to be a certain size in order to compete in the market, the exclusivity contract is less likely to be illegal. Area of Effective Competition - How large is the geographic limitation on competition? The court will examine the extent to which sales boundaries are confined and potential effect in that region. Barriers to Entry - How difficult is it for new competitors to enter the market? To be illegal, the agreement must have a tendency to foreclose competition in a substantial share of the relevant geographic area and line of commerce. A defendant may be able to rebut a Clayton Act § 3 allegation by demonstrating that: There is no foreclosure of competition; The contract is short-term in nature; There are other available modes of distribution; or The pro-competitive aspects of the agreement may outweigh the anticompetitive effects under the rule of reason. One exception is a franchise agreements that requires that all goods purchased come from the franchisor. These are legal, so long as the product is linked to quality of goods. Sourcing things not related to quality of goods cannot be prohibited through a “exclusive source of supply” provision. A challenge to a franchise agreement is subject to the rule of reason. For further written and video explanation, discussion and practice questions, see What are "special arrangements" prohibited under the Clayton Act?
Tying Contracts – Clayton Act
Tying Contract - A tying contract is one in which a product is sold or leased only on the condition that the buyer purchase a different product or service from the seller or lessor. A common type of tying, known as “full-line forcing”, is where a seller compels the buyer to take a complete product line from the seller. That is, the buyer cannot purchase just one product in the line. Another situation involves tying unpatented products to a patented product. Such a practice is per se illegal if the following elements are present: Separate Products - The tying and tied product are two separate products; Market Power - The defendant has substantial market power in tying the product market; Forecloses Trade - The tying agreement prevents a substantial amount of trade in the relevant market; Forced Sale - The defendant effectively forces a substantial number of customers to purchase the tied product under conditions where they may otherwise look to other sellers in the market; Harm to Competition - There must be an identifiable lessening of competition in the market, and No Competitive Justification - No legitimate pro-competitive justification exists. The general defenses of maintaining company goodwill, pro-competitive or strategic objectives, and generating market efficiencies are available to combat a finding of anticompetitive effect. For further written and video explanation, discussion and practice questions, see When are "tying contracts" an illegal restraint under the Clayton Act?
Reciprocal Dealing Contracts – Clayton Act
Reciprocal Dealing Contracts - This is an agreement where a buyer offers to buy a seller’s goods under the condition that the seller buy other goods from the original buyer. These agreement are only illegal if there is a distinct anticompetitive objective with a substantial effect on the product market. Any pro-competitive justification may serve as a defense to a challenge to these practices. For further written and video explanation, discussion and practice questions, see When are "reciprocal dealing contracts" an illegal restraint under the Clayton Act?
Mergers and Acquisitions – Clayton Act
The Clayton Act § 7 makes certain mergers and acquisitions illegal. Basically, one company cannot acquire another company’s stock or assets (or otherwise combine with another entity) if the combination is reasonably likely to substantially lessen competition or tend to create a monopoly. Such activity may also be illegal under Sherman Act § 2 if such activity results in a company acquiring monopoly power following the transaction. Mergers are generally classified as horizontal, market extension, vertical, or conglomerate. Horizontal Merger - A horizontal merger combines competitors or two businesses in the same industry. To determine whether such a merger is anticompetitive, begin by defining the product and geographic market. These two factors define the market share of each entity. If the merger will result in less competition, it may be illegal. The court may examine any justifications for the anticompetitive activity, such as: procompetitive results of the merger, or the offsetting pro-competitive market responses, such as new competitors entering the market; and gains in the market efficiency. Vertical Merger - A vertical merger brings together companies that are in the same chain of commerce. That is, it brings together buyers and suppliers. Such a merger may be illegal where it will: erect barriers to entry for competitors, promotes collusion, or allows the companies to evade regulations. In reviewing a vertical merger, a court may consider the pro-competitive attributes of the merger. Conglomerate Merger - This type of merger is between non-related businesses. These businesses do not compete or operate in the same chain of commerce. This type of merger is illegal when it effectively makes it difficult for new competitors to enter the market. For further written and video explanation, discussion and practice questions, see How does the Clayton Act regulate "mergers and acquisition"?
Regulations Under Federal Trade Commissions Act
The FTC Act §5 proscribes “unfair or deceptive acts or practices” and “unfair methods of competition.” Violations for the Sherman Act and Clayton Act will also violate the FTC Act, so most challenges are raised pursuant to those Acts. The Federal Trade Commission Act, Sherman Act, and Clayton Act, serve to "protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up." The FTC enforces all of the federal antitrust laws. The primary importance of the FTC Act is the regulatory and enforcement authority that it vests in the FTC, which include: Regulatory Authority - The FTC promulgates regulations to effectuation the objectives of the relevant statutory law; Investigate - The FTC investigates allegations against individuals or organizations alleged to violate antitrust law; Civil Actions - The FTC may bring civil actions halt or seek redress for activity violating the antitrust laws. For further written and video explanation, discussion and practice questions, see Regulation of Federal Trade Commission Act.
Sanctions under Antitrust Law
Together the Sherman Act, Clayton Act, and FTC Act allows for four legal sanctions: Injunctions of Activity - Injunctions order a party not to violate or continue violating antitrust provisions. These can be administrative or judicial. Treble (triple) Damages - Plaintiffs may recover civil damages suffered as a result of violation of the antitrust laws. Section 4 of the Clayton Act authorizes victims in a civil action (private parties or the US Government) to collect three times the damages they have suffered, plus court costs and reasonable attorneys’ fees. Criminal Fines and Imprisonment (felonies) - Individuals fined up to $1 million and 10 years in prison. Corporations may be fined up to $100 million per offense. Nolo Contendere - Defendant’s will often plead nolo contendere in a criminal action and focus on defending the civil action case. The reason is that a criminal conviction is largely conclusive in proving violation in the civil court. A nolo contendere plea avoids this scenario. The FTC, DOJ, state governments, and private parties may bring actions to enforce antitrust laws and may seek any combination of the above sanctions. For further written and video explanation, discussion and practice questions, see What "sanctions" are available under antitrust law?
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