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.
• Discussion: Why do you think the government concerns it self with industry competition and consumer welfare? Should it? Why or why not?
• Practice Question: What are the legislative objectives behind the antitrust laws? Is all business activity that dominates a product market illegal under the antitrust laws? Why or why not?
What are the major antitrust laws in the United States?
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.
What entities are charged with carrying out the federal antitrust laws?
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.
• Discussion: What do you think about the extent of the FTC’s authority to regulate and administer antitrust laws? Does the FTC have too much autonomy in determining what constitutes “unfair” competition? Why or why not? What do the above-referenced questions indicate about the objectives of the FTC in enforcing antitrust law?
• Practice Question: What standard does the FTC apply when determining whether conduct runs afoul of the antitrust laws?
What sanctions are available under the antitrust laws?
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.
• Discussion: How do you feel about the sanctions associated with violations of the antitrust laws? Should there by criminal penalties attached to this conduct?
• Practice Question: MicroData, Inc, produces software for use personal computers. MicroData has been pricing its product at below its cost of production in an effort to force its primary competitor, DataServe, out of the market. MicroData received a cease and desist order from the FTC, but it has continued the practice. What are the possible sanctions that MicroData could face in this situation?