1. Chapter 46 Antitrust Laws and Unfair Trade Practices

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Federal Antitrust Law
Antitrust laws: A series of laws enacted to limit anticompetitive behavior in almost all industries, businesses, and professions operating in the United States
Comprises several major statutes that prohibit certain anticompetitive and monopolistic practices
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Federal Antitrust Law
Government enforcement of federal antitrust laws divided between the Antitrust Division of the Department of Justice and the Bureau of Competition of the FTC
Sherman Act only major antitrust act that includes criminal sanctions
Government may seek civil damages, including treble damages, for violations of antitrust laws
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Federal Antitrust Law
Section 4 of the Clayton Act: Permits any person who suffers antitrust injury in his or her “business or property” to bring a private civil action against the offenders
To recover damages, plaintiffs must prove that they suffered antitrust injuries caused by the prohibited act
Successful plaintiffs may recover treble damages
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Federal Antitrust Law
Treble damages: Damages that may be awarded in a successful civil antitrust lawsuit, in an amount that is triple the amount of actual damages
Damages may be calculated as lost profits - rule applies to all violations of the Sherman Act, the Clayton Act, and the Robinson-Patman Act
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Federal Antitrust Law
Government judgment: A judgment obtained by the government against a defendant for an antitrust violation that may be used as prima facie evidence of liability in a private civil treble- damages action
Section 16 of the Clayton Act permits the government or a private plaintiff to obtain an injunction against anticompetitive behavior that violates antitrust laws
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7. Restraints of Trade: Section 1 of the Sherman Act
Section 1 of the Sherman Act: Prohibits contracts, combinations, and conspiracies in restraint of trade
Outlaws contracts, combinations, and conspiracies in restraint of trade
U.S. Supreme Court developed two tests for determining the lawfulness of a restraint:
Rule of reason
Per se rule
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8. Restraints of Trade: Section 1 of the Sherman Act
Rule of reason: Only unreasonable restraints of trade violate Section 1 of the Sherman Act
Per se rule: Applicable to restraints of trade considered inherently anticompetitive
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9. Restraints of Trade: Section 1 of the Sherman Act
Horizontal restraints of trade: A restraint of trade that occurs when two or more competitors at the same level of distribution enter into a contract, combination, or conspiracy to restrain trade
Most fall under the per se rule
Some examined under the rule of reason
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10. Exhibit 46.1 – Horizontal Restraint of Trade
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11. Restraints of Trade: Section 1 of the Sherman Act
Price-Fixing: A restraint of trade that occurs when competitors in the same line of business agree to set the price of the goods or services they sell, raising, depressing, fixing, pegging, or stabilizing the price of a commodity or service
Division of markets: A restraint of trade in which competitors agree that each will serve only a designated portion of the market
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12. Restraints of Trade: Section 1 of the Sherman Act
Group boycott: A restraint of trade in which two or more competitors at one level of distribution agree not to deal with others at another level of distribution
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13. Exhibit 46.2 - Group Boycott by Sellers
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14. Exhibit 46.3 Group Boycott by Purchasers
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15. Restraints of Trade: Section 1 of the Sherman Act
Other horizontal agreements:
Trade association activities and rules, exchange of non-price information, participation in joint ventures
Reasonable restraints are lawful
Unreasonable restraints violate Section 1 of the Sherman Act
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16. Restraints of Trade: Section 1 of the Sherman Act
Vertical restraint of trade: A restraint of trade that occurs when two or more parties on different levels of distribution enter into a contract, combination, or conspiracy to restrain trade
Court applies both per se rule and rule of reason
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17. Exhibit 46.4 - Vertical Restraint of Trade
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18. Restraints of Trade: Section 1 of the Sherman Act
Resale price maintenance (vertical price-fixing): A per se violation of Section 1 of the Sherman Act that occurs when a party at one level of distribution enters into an agreement with a party at another level to adhere to a price schedule that either sets or stabilizes prices
Setting maximum resale prices examined under rule of reason
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19. Restraints of Trade: Section 1 of the Sherman Act
Nonprice vertical restraints: Restraints of trade that are unlawful under Section 1 of the Sherman Act if their anticompetitive effects outweigh their procompetitive effects
Unilateral refusal to deal: Unilateral choice by one party not to deal with another party
Not a violation of Section 1 of the Sherman Act because there is no concerted action with others
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20. Restraints of Trade: Section 1 of the Sherman Act
Conscious parallelism: A doctrine which states that if two or more firms act the same but no concerted action is shown, there is no violation of Section 1 of the Sherman Act
Noerr doctrine: Two or more persons can petition the executive, legislative, or judicial branch of the government or administrative agencies to enact laws or take other action without violating antitrust laws
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21. Monopolization: Section 2 of the Sherman Act
Section 2 of Sherman Act: Prohibits act of monopolization as well as attempts or conspiracies to monopolize trade
Proving that a defendant is in violation of Section 2 means proving that the defendant:
Possesses monopoly power in the relevant market
Engaged in a willful act of monopolization to acquire or maintain that power
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22. Monopolization: Section 2 of the Sherman Act
Relevant product or service market: Includes substitute products or services that are reasonably interchangeable with the defendant’s products or services
Relevant geographical market: Area in which the defendant and its competitors sell the product or service
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23. Monopolization: Section 2 of the Sherman Act
Monopoly power: The power to control prices or exclude competition
Measured by the market share the defendant possesses in the relevant market
Willful act of monopolizing: An act that is required to find a violation of Section 2 of the Sherman Act
Possession of monopoly power without such act does not violate Section 2
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24. Monopolization: Section 2 of the Sherman Act
Firms that attempt or conspire to monopolize a relevant market may be found liable under Section 2 of the Sherman Act
Defenses to Monopolization:
Innocent acquisition
Natural monopoly
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25. Mergers: Section 7 of the Clayton Act
Section 7 of the Clayton Act: A section which provides that it is unlawful for a person or business to acquire the stock or assets of another “where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly”
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26. Mergers: Section 7 of the Clayton Act
Elements to prove a violation:
Line of commerce: The products or services that will be affected by a merger, including those that consumers use as substitutes
Section of the country: Geographical area that will feel the direct and immediate effects of a merger
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27. Mergers: Section 7 of the Clayton Act
Probability of a substantial lessening of competition: The probability that a merger will substantially lessen competition or create a monopoly
Classification of mergers:
Horizontal merger: A merger between two or more companies that compete in the same business and geographical market
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28. Mergers: Section 7 of the Clayton Act
Vertical merger: A merger that integrates the operations of a supplier and a customer
Market extension merger: A merger between two companies in similar fields whose sales do not overlap
Conglomerate merger: A merger between firms in totally unrelated businesses
Does not fit into any other category
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29. Mergers: Section 7 of the Clayton Act
Defenses to Section 7 Actions:
The failing company doctrine
The small company doctrine
Hart-Scott-Rodino Antitrust Improvement Act: An act that requires certain firms to notify the Federal Trade Commission and the Justice Department in advance of a proposed merger
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30. Tying Arrangements: Section 3 of the Clayton Act
Section 3 of the Clayton Act: Prohibits tying arrangements that involve sales and leases of goods
Tying arrangement: A restraint of trade in which a seller refuses to sell one product to a customer unless the customer agrees to purchase a second product from the seller
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31. Price Discrimination: Section 2 of the Clayton Act
Section 2 of the Clayton Act (Robinson-Patman Act): A federal statute that prohibits price discrimination in the sale of goods if certain requirements are met
Section 2(a) of the Robinson-Patman Act: A section that prohibits direct and indirect price discrimination by sellers of a commodity of a like grade and quality
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32. Direct Price Discrimination
To prove a violation of Section 2(a) of the Robinson-Patman Act, the following elements of direct price discrimination must be shown:
Commodities of like grade and quality
Sales to two or more purchasers
Injury
A plaintiff who has not suffered injury because of a price discrimination cannot recover
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33. Indirect Price Discrimination
A form of price discrimination (e.g., favorable credit terms) that is less readily apparent than direct forms of price discrimination
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34. Defenses to Price Discrimination
Cost justification defense: A defense in a Section 2(a) action which provides that a seller’s price discrimination is not unlawful if the price differential is due to “differences in the cost of manufacture, sale, or delivery” of the product
Changing conditions defense: A price discrimination defense that claims prices were lowered in response to changing conditions in the market for or the marketability of the goods
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35. Defenses to Price Discrimination
Meeting the competition defense: A defense provided in Section 2(b) of the Robinson-Patman Act that says a seller may lawfully engage in price discrimination to meet a competitor’s price
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36. Federal Trade Commission Act
A federal government administrative agency that is empowered to enforce the Federal Trade Commission Act
Section 5 of the Federal Trade Commission Act: A section that prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce
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37. Exemptions From Antitrust Laws
Statutory exemptions: Exemptions from antitrust laws that are expressly provided in statutes enacted by Congress
Implied exemptions: Exemptions from antitrust laws that are implied by the federal courts
State action exemptions: Business activities that are mandated by state law are exempt from federal antitrust laws
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State Antitrust Laws
Most states have enacted antitrust statutes
Usually patterned after federal antitrust statutes
Used to attack anticompetitive activity that occurs in intrastate commerce
When applied laxly, plaintiffs often bring lawsuits under state antitrust laws
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