Chapter Nineteen | Antitrust

Introduction and Overview

The United States economy relies heavily on the free market system to allocate resources fairly and wisely. However, many believe that if left to their own devices, markets will tend to be monopolized where the presence of a single supplier of a product or service will dominate. To prevent this possibility of monopolization, antitrust laws were designed in order to ensure the maximization of consumer welfare and that competition in the market would remain in a healthy state.

There are two major competing schools of thought concerning the proper purpose of antitrust law. The Chicago School sees as the primary purpose of antitrust law the promotion of the maximization of consumer welfare using market principles and efficiency criteria. This ideology results in less striking prohibitive conduct “on its face,” but seeks a factual, case-by-case specific analysis in order to determine if the conduct at issue is illegal. In contrast, the Harvard School believes that antitrust laws are important for the preservation of small businesses in an economy characterized by many sellers in competition with each other; the prevention of concentration of political and economic power in the hands of a few sellers in each industry; and the preservation of essentially local control of business and protection against the effects of labor dislocation.

At their essence, antitrust laws are primarily concerned with regulating private economic power through fostering competition. Competition is desirable for many reasons. Supporters of antitrust legislation believe that competition will guaranty efficiency in resource allocation; foster consumer choice; assure avoidance of concentration of political power; and guaranty fairness in economic behavior. The various antitrust laws focus generally on conduct or business activity, as opposed to more generalized market structure, although an analysis of monopolization will involve both conduct and market structure. To determine whether particular conduct violates antitrust laws requires an understanding of the body of statutes that are generally considered to constitute the antitrust laws.

Antitrust Enforcement

The Antitrust Division of United States Department of Justice and the Federal Trade Commission are primarily responsible for enforcement of antitrust laws in the public sector. Individuals or businesses that claim that they have been injured by anti-competitive behavior may bring a private action under one or more of the federal statutes discussed below. Sometimes an individual suit may be filed in a class action format, brought by a member of a group of persons on behalf of the entire group or class. A parens patriae suit may be brought by the Attorney General of a state on behalf of consumers or taxpayers of a state. These suits protect the rights of citizens who generally cannot protect themselves, and may also further public policy.

Generally, the Antitrust Division has exclusive jurisdiction of the Sherman Act; the Antitrust Division has concurrent jurisdiction with the FTC to enforce the Clayton Act; and the FTC has exclusive jurisdiction to enforce the FTC Act.

Antitrust Remedies

Penalties for violating antitrust laws include criminal and civil penalties:

• Violations of the Sherman Act: individuals can be fined up to $350,000 and sentenced to up to 3 years in prison. Companies can be fined up to $10 million.
• Violations of the Clayton Act: individuals injured by antitrust violations can sue the violators in court for three times the amount of damages actually suffered. These are known as treble-damages, and can also be sought in class-action antitrust lawsuits. Damages also include attorneys’ fees and other litigation costs.
• Violations of the Federal Trade Commission Act: the FTC has the authority to issue an order that the violator stop its anticompetitive practices.
• Violations of State Antitrust Laws: state antitrust laws often prohibit the same kinds of conduct as the federal antitrust laws. As a result, the penalties state laws impose are also similar and can range from criminal to civil sanctions. (See http://www.legalmatch.com/law-library/article/penalties-for-violating-antitrust-laws.html#sthash.5fUxwaCr.dpuf.)
• In order to avoid the cost of litigation or further administrative actions, parties may enter into a consent decree, which today is a major source of a resolution of an antitrust case.

Other equitable remedies available to courts include:

• Divestiture of a unit of a company or of a subsidiary;
• The requirement that a company license a patent or a trademark that has been used in an anticompetitive manner;
• Division of a company into smaller components or divisions (AT&T);
• The requirement that a business cancel a contract that evidences anticompetitive aspects or practices.

In certain cases, a party found to have engaged in anticompetitive practices may be forced to pay three-times the actual damages, called punitive damages, incurred in order to punish that party for its intentional conduct. (MCI v AT&T).

The Statutory Framework

There are three principle statutes operating in the area of antitrust enforcement. The Sherman Act, enacted in 1890, was the first and most important of the federal antitrust laws. The Sherman Act prohibits “contracts, combination, and conspiracies in restraints of trade” and certain monopolistic acts. In 1914, Congress passed the Clayton Act to supplement the general prohibitions of the Sherman Act. The Clayton Act applies to certain forms of price discrimination, certain mergers and acquisitions, certain tying arrangements, and makes certain “exclusive dealing” arrangements illegal. Lastly, the Federal Trade Commission Act (FTC Act), though technically not one of the exclusive antitrust laws, was also passed by Congress in 1914 to strengthen the federal government’s authority when proceeding against business practices, termed “deceptive acts or practices,” that pose a threat to free competition.

The Sherman Act

“The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.” Northern Pacific Railway Co. v United States, 1, 4 (1958). The Sherman Act rests on the premise that the interaction of competitive forces will yield the best allocation of economic resources, the lowest prices, the highest quality, and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.

Section 1 of the Sherman Act — Restraint of Trade

Section 1 of the Sherman Act, found at 15 U.S.C. §1 (1988), provides that “every contract, combination, in the form of a trust or otherwise, or conspiracy, in restraint of trade … is declared to be illegal.” However, since every agreement between an individual and corporation or between individuals involved in a commercial activity restrains trade to a certain degree, the Supreme Court has consistently interpreted the broad language of Section 1 to prohibit restraints which unreasonably restrict competition. There are, however, some practices that are so pernicious that they will be deemed illegal under all circumstances under a per se analysis. The Act prohibits only concerted (i.e., joint) action by two or more parties in restraint of trade. Thus, in determining whether a particular restraint or activity is unlawful, courts apply two tests, namely the rule of reason and the per se rule, both of which are discussed below.

The Rule of Reason

A rule of reason analysis, outlined by Justice Louis Brandeis in Board of Trade of Chicago v. United States (1918), and previously enunciated in Standard Oil of New Jersey v. United States (1911) tests the legality of a particular business practice by examining whether the practice promotes or suppresses competition. Some of the factors considered by the courts in applying the rule of reason includes (i) the positive and negative competitive impacts; business conditions before and after the restraint is imposed; the purpose and nature of the restraint; the intent of the party imposing the restraint; and the existence of less restrictive alternatives which could achieve the same goals.

 

Case Summary

The Standard Oil Company Of New Jersey Et Al v. U.S.

Supreme Court of the United States, 221 U.S. 1 (1911)

The facts, which involve the construction of the Sherman Anti-trust Act of July 2, 1890, and whether defendants had violated its provisions, are stated in the opinion.

Here is a brief statement of the facts of the case as found in the Court’s opinion:

That during said first period, the said individual defendants, in connection with the Standard Oil Company of Ohio, purchased and obtained interests through stock ownership and otherwise in, and entered into agreements with, various persons, firms, corporations, and limited partnerships engaged in purchasing, shipping, refining, and selling petroleum and its products among the various States for the purpose of fixing the price of crude and refined oil and the products thereof, limiting the production thereof, and controlling the transportation therein, and thereby restraining trade and commerce among the several States, and monopolizing the said commerce.

The Court decided that the Sherman Anti-trust Act of July 2, 1890, should be construed in the light of a rule of reason; and, as so construed, it prohibits all contracts and combination which amount to an unreasonable or undue restraint of trade in interstate commerce.

The Court decided that the combination of the defendants in this case was an “unreasonable and undue restraint of trade” in petroleum and its products moving in interstate commerce, and falls within the prohibitions of the act as so construed.

The Court looked at the history of the Sherman Act. It stated: “The terms “restraint of trade,” and “attempts to monopolize,” as used in the Anti-trust Act, took their origin in the common law and were familiar in the law of this country prior to and at the time of the adoption of the act, and their meaning should be sought from the conceptions of both English and American law prior to the passage of the act.”

Further, the Court noted that “At common law monopolies were unlawful because of their restriction upon individual freedom of contract and their injury to the public and at common law; and contracts creating the same evils were brought within the prohibition as impeding the due course of, or being in restraint of, trade.”

In its decision the Supreme Court ruled that the Sherman Act was not intended to restrain the right to make and enforce contracts, whether resulting from combinations or otherwise, which do not “unduly restrain interstate or foreign commerce,” but to protect commerce from contracts or combinations by methods, whether old or new, which would constitute an interference with, or an undue restraint upon, it.

The Sherman Act intended that the standard of the rule of reason which had been applied at the common law should be applied in determining whether particular acts were within its prohibitions.

In apply the Sherman Act to the actual facts of the case, the Supreme Court stated:

The unification of power and control over a commodity such as petroleum, and its products, by combining in one corporation the stocks of many other corporations aggregating a vast capital gives rise, of itself, to the prima facie presumption of an intent and purpose to dominate the industry connected with, and gain perpetual control of the movement of, that commodity and its products in the channels of interstate commerce in violation of the Anti-trust Act of 1890, and that presumption is made conclusive by proof of specific acts such as those in the record of this case.

The Court also commented about the remedy to be applied once the Courts decide that an antitrust violation has been determined:

The remedy to be administered in case of a combination violating the Anti-trust Act is two-fold: first, to forbid the continuance of the prohibited act, and second, to so dissolve the combination as to neutralize the force of the unlawful power.

Finally, the Court made a general comment regarding the relationship of antitrust law to normal business practices.

The constituents of an unlawful combination under the Anti-trust Act should not be deprived of power to make normal and lawful contracts, but should be restrained from continuing or recreating the unlawful combination by any means whatever; and a dissolution of the offending combination should not deprive the constituents of the right to live under the law but should compel them to obey it.

In determining the remedy against an unlawful combination, the court must consider the result and not inflict serious injury on the public by causing a cessation of interstate commerce in a necessary commodity.

Now, look carefully at a case which was decided under a rule of reason analysis:

 

Case Summary

California Dental Association v. FTC

Supreme Court of the United States, 526 U.S. 756 (1999)

Petitioner California Dental Association (CDA), a nonprofit association of local dental societies to which about three-quarters of the State’s dentists belong, provides desirable insurance and preferential financing arrangements for its members, and engages in lobbying, litigation, marketing, and public relations for members’ benefit. Members agree to abide by the CDA’s Code of Ethics, which, inter alia, prohibits false or misleading advertising. The CDA has issued interpretive advisory opinions and guidelines relating to advertising. Respondent Federal Trade Commission brought a complaint, alleging that the CDA violated §5 of the Federal Trade Commission Act (Act), 15 U .S. C. §45, in applying its guidelines so as to restrict two types of truthful, nondeceptive advertising: price advertising, particularly discounted fees, and advertising relating to the quality of dental services. An Administrative Law Judge (ALJ) held the Commission to have jurisdiction over the CDA and found a §5 violation. As relevant here, the Commission held that the advertising restrictions violated the Act under an abbreviated rule-of-reason analysis. In affirming, the Ninth Circuit sustained the Commission’s jurisdiction and concluded that an abbreviated or “quick look” rule-of-reason analysis was proper in this case.

Held:

1. The Commission’s jurisdiction extends to an association that, like the CDA, provides substantial economic benefit to its for-profit members. The Act gives the Commission authority over a “corporatio[n],” 15 U. S. C. §45(a)(2), “organized to carry on business for its own profit or that of its members,” §44. The Commission’s claim that the Act gives it jurisdiction over nonprofit associations whose activities provide substantial economic benefits to their for-profit members is clearly the better reading of the Act, which does not require that a supporting organization must devote itself entirely to its members’ profits or say anything about how much of the entity’s activities must go to raising the members’ bottom lines. There is thus no apparent reason to let the Act’s application turn on meeting some threshold percentage of activity for this purpose or even a softer formulation calling for a substantial part of the entity’s total activities to be aimed at its members’ pecuniary benefit. The Act does not cover all membership organizations of profit-making corporations without more. However, the economic benefits conferred upon CDA’s profit-seeking professionals plainly fall within the object of enhancing its members’ “profit,” which is the Act’s jurisdictional touchstone. The Act’s logic and purpose comport with this result, and its legislative history is not inconsistent with this interpretation.

2. Where any anticompetitive effects of given restraints are far from intuitively obvious, the rule of reason demands a more thorough enquiry into the consequences of those restraints than the abbreviated analysis the Ninth Circuit performed in this case.

(a) An abbreviated or “quick-look” analysis is appropriate when an observer with even a rudimentary understanding of economics could conclude that the arrangements in question have an anticompetitive effect on customers and markets. See, e.g., National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., 468 U. S. 85. This case fails to present a situation in which the likelihood of anticompetitive effects is comparably obvious, for the CDA’s advertising restrictions might plausibly be thought to have a net procompetitive effect or possibly no effect at all on competition.

(b) The discount and nondiscount advertising restrictions are, on their face, designed to avoid false or deceptive advertising in a market characterized by striking disparities between the information available to the professional and the patient. The existence of significant challenges to informed decision making by the customer for professional services suggests that advertising restrictions arguably protecting patients from misleading or irrelevant advertising call for more than cursory treatment. In applying cursory review, the Ninth Circuit brushed over the professional context and described no anticompetitive effects from the discount advertising bar. The CDA’s price advertising rule appears to reflect the prediction that any costs to competition associated with eliminating across-the-board advertising will be outweighed by gains to consumer information created by discount advertising that is exact, accurate, and more easily verifiable. This view may or may not be correct, but it is not implausible; and neither a court nor the Commission may initially dismiss it as presumptively wrong. The CDA’s plausible explanation for its nonprice advertising restrictions, namely that restricting unverifiable quality claims would have a procompetitive effect by preventing misleading or false claims that distort the market, likewise rules out the Ninth Circuit’s use of abbreviated rule-of-reason analysis for those restrictions. The obvious anticompetitive effect that triggers such analysis has not been shown.

(c) Saying that the Ninth Circuit’s conclusion required a more extended examination of the possible factual underpinnings than it received is not necessarily to call for the fullest market analysis. Not every case attacking a restraint not obviously anticompetitive is a candidate for plenary market examination. There is generally no categorical line between restraints giving rise to an intuitively obvious inference of anticompetitive effect and those that call for more detailed treatment. What is required is an enquiry meet for the case, looking to a restraint’s circumstances, details, and logic. Here, a less quick look was required for the initial assessment of the CDA’s advertising restrictions.

Vacated and remanded.

The Per Se Rule

Under a per se analysis, courts exercise limited analysis and focus on whether the conduct in question falls within a category which is deemed to be manifestly anticompetitive under all or most circumstances. Under this approach, the business activity or practice is presumed illegal and the courts will not inquire as to the precise harm the conduct may have caused.

Horizontal Restraints of Trade

Horizontal restraints are those among competitors at the same level of the market structure (among manufacturers, distributors, wholesalers, or sellers who are competitors in the marketplace). The most common forms of horizontal restraints are discussed below.

Horizontal Price Fixing

Horizontal price fixing is considered to be one of the most serious antitrust offenses. Price fixing involves agreements between competitors for the purpose, and with the effect, of raising, depressing, fixing, pegging, or stabilizing the price of products or services. Horizontal price fixing is a per se violation of the antitrust laws. In order to constitute per se illegal price fixing, prices do not have to be fixed at a uniform rate. A violation can occur even in situations where competitors agree on a price range, a pricing formula, or an arrangement aimed at stabilizing current prices. Agreements to fix prices among competitors are not excused by any defense or justification. “Whatever economic justification particular price fixing agreements may be thought to have, the law does not permit inquiry into their reasonableness. They are all banned because of their actual or potential threat to the central nervous system of the economy.” United States v. Socony-Vacuum Oil Co., 310 U.S. at 225 n.59. [However, in its 1997 term, the Supreme Court ruled that the setting of a maximum price by a manufacturer would henceforth be judged under a rule of reason rather than a per se analysis. This would seem to be a major break from nearly a half-century of its prior case analysis—although the circumstances involved a vertical restraint.]

Note, certain businesses which are subject to government regulation (for example, airlines, railroads, shipping, stock exchanges, insurance companies, banks) may be permitted to “fix” or set prices or rates without violating the antitrust laws if the appropriate governmental agency has determined that the rates set are in the “public interest.” There are also several other general exemptions from antitrust law including: agricultural marketing cooperatives; bona fide labor union activities; bona fide collective bargaining activities; and professional baseball, through the operation of precedent or stare decisis as determined in Federal Baseball Club v. National League (1922).

The following case illustrates horizontal price fixing.

 

Case Summary

FTC v. Superior Court Trial Lawyers Association

Supreme Court of the United States, 493 U.S. 411 (1990)

Lawyers in private practice who acted as court-appointed counsel for indigent defendants in criminal cases in District of Columbia Superior Court petitioned for review of determination by Federal Trade Commission that lawyers violated antitrust law by organizing and participating in boycott aimed at forcing increase of compensation paid to them.

A group of lawyers in private practice who regularly acted as court-appointed counsel for indigent defendants in District of Columbia criminal cases agreed at a meeting of the Superior Court Trial Lawyers Association (SCTLA) to stop providing such representation until the District increased group members’ compensation. The boycott had a severe impact on the District’s criminal justice system, and the District government capitulated to the lawyers’ demands. After the lawyers returned to work, petitioner Federal Trade Commission (FTC) filed a complaint against SCTLA and four of its officers (respondents), alleging that they had entered into a conspiracy to fix prices and to conduct a boycott that constituted unfair methods of competition in violation of §5 of the FTC Act. Declining to accept the conclusion of the Administrative Law Judge (ALJ) that the complaint should be dismissed, the FTC ruled that the boycott was illegal per se and entered an order prohibiting respondents from initiating future such boycotts. The Court of Appeals, although acknowledging that the boycott was a “classic restraint of trade” in violation of §1 of the Sherman Act, vacated the FTC order. Reasoning that this test could not be satisfied by the application of an otherwise appropriate per se rule, but instead requires the enforcement agency to prove rather than presume that the evil against which the antitrust laws are directed looms in the conduct it condemns, the court remanded for a determination whether respondents possessed “significant market power.”

Held:

Respondents’ boycott constituted a horizontal arrangement among competitors that was unquestionably a naked restraint of price and output in violation of the antitrust laws. Respondents’ proffered social justifications for the restraint of trade do not make the restraint any less unlawful. Nor is respondents’ agreement outside the coverage of the antitrust laws under simply because its objective was the enactment of favorable legislation. The undenied objective of this boycott was to gain an economic advantage for those who agreed to participate.

Division of Markets

Agreements among competitors to divide markets are illegal per se. The per se rule applies regardless of whether the division is based upon geography, customers, the type of transaction, the product involved, or the sequence, e.g., only Firm-A will participate in the first bid and only Firm-B will participate in the second bid. This rule also applies to reciprocal agreements among potential customers; it is per se illegal to agree not to enter a competitor’s market in exchange for its not entering your market.

Case Summary

Palmer v. BRG Of Georgia, Inc.

Supreme Court of the United States, 48 U.S. 46 (1990)

A former law student brought action against providers of bar review courses, alleging that arrangement between the providers pursuant to which one of them withdrew from the Georgia market was violative of the Sherman Act.

In preparation for the 1985 Georgia Bar Examination, petitioners contracted to take a bar review course offered by respondent BRG of Georgia, Inc. (BRG). In this litigation they contend that the price of BRG’s course was enhanced by reason of an unlawful agreement between BRG and respondent Harcourt Brace Jovanovich Legal and Professional Publications (HBJ), the Nation’s largest provider of bar review materials and lecture services. The central issue is whether the 1980 agreement between respondents violated §1 of the Sherman Act. HBJ began offering a Georgia bar review course on a limited basis in 1976, and was in direct, and often intense, competition with BRG during the period from 1977 to 1979. BRG and HBJ were the two main providers of bar review courses in Georgia during this time period. In early 1980, they entered into an agreement that gave BRG an exclusive license to market HBJ’s material in Georgia and to use its trade name “Bar/Bri.” The parties agreed that HBJ would not compete with BRG in Georgia and that BRG would not compete with HBJ outside of Georgia. Under the agreement, HBJ received $100 per student enrolled by BRG and 40% of all revenues over $350. Immediately after the 1980 agreement, the price of BRG’s course was increased from $150 to over $400.

In United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940), we held that an agreement among competitors to engage in a program of buying surplus gasoline on the spot market in order to prevent prices from falling sharply was unlawful, even though there was no direct agreement on the actual prices to be maintained. We explained that “[u]nder the Sherman Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se.” Id., at 223, 60 S.Ct., at 844.

The revenue-sharing formula in the 1980 agreement between BRG and HBJ, coupled with the price increase that took place immediately after the parties agreed to cease competing with each other in 1980, indicates that this agreement was “formed for the purpose and with the effect of raising” the price of the bar review course.

In United States v. Topco Associates, Inc., 405 U.S. 596, 92 S.Ct.1126, 31 L.Ed.2d 515 (1972), we held that agreements between competitors to allocate territories to minimize competition are illegal: “One of the classic examples of a per se violation of §1 is an agreement between competitors at the same level of the market structure to allocate territories in order to minimize competition…. This Court has reiterated time and time again that ‘[h]orizontal territorial limitations … are naked restraints of trade with no purpose except stifling of competition.’ Such limitations are per se violations of the Sherman Act.” Id. at 608, 92 S.Ct., at 1133-34. The defendants in Topco had never competed in the same market, but had simply agreed to allocate markets. Here, HBJ and BRG had previously competed in the Georgia market; under their allocation agreement, BRG received that market, while HBJ received the remainder of the United States. Each agreed not to compete in the other’s territories. Such agreements are anticompetitive regardless of whether the parties split a market within which both do business or whether they merely reserve one market for one and another for the other.

The petition for a writ of certiorari is granted, the judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

Group Boycotts (Concerted Refusals to Deal)

A group boycott, also called a concerted refusal to deal, exists when a group of companies agree to refrain from dealing with another company or companies in order to gain a competitive advantage by forcing the acceptance of certain conditions or by forcing another company or companies out of business. Traditionally, concerted refusals to deal were per se illegal. However, recent decisions of the United States Supreme Court have determined that not all cases involving a refusal to deal would be judged under the per se rule. Although the Supreme Court has not articulated a precise rule, the Court has suggested that the per se rule would be applicable only where the refusal to deal denies the plaintiff access to a supply or facility necessary to be a viable competitor. Since 1985, the majority of the cases involving group boycotts have been analyzed under the rule of reason. The per se approach has generally been limited to cases in which firms with market power boycott suppliers or customers to discourage them from doing business with a competitor.

An important defense to a claim of a group boycott or a concerted refusal to deal is the “business judgment rule.” This defense may be used where a defendant can prove that a decision not to deal with a particular party was based on sound business reasons including business experience, financial ability, or “moral character,” especially as this term may relate to the intangible element of “good will” in a business. The business judgment rule is a frequent defense offered in cases involving franchising or in a variety of labor disputes.

Other Horizontal Agreements

Other agreements among competitors are analyzed under the rule of reason, which balances the pro-competitive and anticompetitive effects of any agreement. Examples of such agreements include, but are not limited to, exchange of information, trade association activities, and joint venture activities.

Vertical Restraints of Trade

Vertical restraints are those that involve firms at different levels of the distribution or marketing chain — in particular between suppliers and customers. Antitrust laws involve two basic categories of vertical restraints: (a) vertical price restraints; and (b) non-price vertical restraints.

Vertical Price Restraints

Vertical price restraints are directed at independent wholesalers and retailers who sell the manufacturer’s products. A vertical price restraint involves an agreement between a manufacturer and a wholesaler or retailer where the manufacturer fixes or sets the price at which the wholesaler or retailer may resell the product. Until recently, such agreements were judged to be illegal per se. Today, however, courts have begun to utilize a rule of reason approach in cases where a franchisor sets a uniform price in order to assure quality control or to support a national advertising campaign.

One exception to a finding of a vertical price restraint occurs in a consignment sale. In a situation where there is a consignment of products in which the manufacturer retains the title, ownership, and risk of loss, and the seller has the right of return of any unsold goods, establishing the resale price may not be unlawful. United States v. General Elec. Co., 272 U.S. 476 (1926). In addition, a seller may advertise or print on the product a “suggested resale price.” Suggesting a resale prices is currently not a violation of the antitrust laws where a retailer is free to charge a higher or a lower price so long as the seller does no more than merely “suggest the price.” A practice called “active exhortation” may run afoul of the “mere suggestion” exception.

Price fixing — both horizontal (between competitors) or vertically (businesses within a marketing chain) may be difficult to prove through overt actions or direct proof. Thus, the Department of Justice often relies on a theory called conscious parallelism in order to make out its case. The doctrine of conscious parallelism may be found in Interstate Circuit where the court held that evidence of a conspiracy between filmmakers was able to be inferred through the unanimity of agreements between the parties and not necessarily through direct evidence. At its essence, conscious parallelism permits the plaintiff to prove price fixing through circumstantial evidence where there is:

• Knowledge of pricing of competitors;
• Motivation to keep prices high; and
• Substantial unanimity (roughly +/-5 %) of the prices of each of the parties involved.

 

Case Summary

Interstate Circuit v. U.S.

Supreme Court of the United States, 306 U.S. 208 (1938)

PER CURIAM.

The Government brought this suit for an injunction against the carrying out of an alleged conspiracy, in restraint of interstate commerce, between distributors and exhibitors of motion picture films. The restraint was alleged to consist in provisions in license agreements which prevented any ‘feature picture’ of the distributors, which had been shown ‘first-run’ in a theater of the defendant exhibitor at an admission price of 40 cents or more, from thereafter being exhibited in the same locality at an admission price of less than 25 cents or on the same program with another feature picture. [304 U.S. 55, 56] The evidence was presented by an agreed statement of certain facts and by oral testimony on behalf of each party. The District Court entered a final decree adjudging that in making the restrictive agreements the distributors had engaged in a conspiracy with the exhibitor, Interstate Circuit, Inc., and its officers in violation of the Anti-Trust Act, 15 U.S. C.A. 1 et seq., and granting a permanent injunction against the enforcement of the restrictions. 20 F.Supp. 868. The case comes here on direct appeal.

Equity Rule 70 1/2, 28 U.S.C.A. following section 723, provides: ‘In deciding suits in equity, including those required to be heard before three judges, the court of first instance shall find the facts specially and state separately its conclusions of law thereon; …

‘Such findings and conclusions shall be entered of record and, if an appeal is taken from the decree, shall be included by the clerk in the record which is certified to the appellate court under rules 75 and 76.’

The District Court did not comply with this rule. The court made no formal findings. The court did not find the facts specially and state separately its conclusions of law as the rule required. The statements in the decree that in making the restrictive agreements the parties had engaged in an illegal conspiracy were not ultimate conclusions and did not dispense with the necessity of properly formulating the underlying findings of fact.

The opinion of the court was not a substitute for the required findings. A discussion of portions of the evidence and the court’s reasoning in its opinion do not constitute the special and formal findings by which it is the duty of the court appropriately and specifically to determine all the issues which the case presents. This is an essential aid to the appellate court in reviewing an equity case, Railroad Commission v. Maxcy, 281 U.S. 82, cited, and compliance with the rule is particularly important in an anti-trust case which comes to this Court by direct appeal from the trial court.

The Government contends that the distributors were parties to a common plan constituting a conspiracy in restraint of commerce; that each distributor would benefit by unanimous action, whereas otherwise the restrictions would probably injure the distributors who imposed them, and that prudence dictated that ‘no distributor agree to impose the restrictions in the absence of agreement or understanding that his fellows would do likewise’; that the restraints were unreasonable, and that they had the purpose and effect of raising and maintaining the level of admission prices; that even if the distributors acted independently and not as participants in a joint undertaking, still the restraints were unreasonable in their effect upon the exhibitor’s competitors.

Appellants, asserting copyright privileges, contend that the restrictions were reasonable; that they were intended simply to protect the licensee from what would otherwise be an unreasonable interference by the distributors with the enjoyment of the granted right of exhibition; that there was no combination or conspiracy among the distributors; that it was to the independent advantage of each distributor to impose the restrictions in its own agreement and that the contention that less than substantially unanimous action would have injured the distributors in making such agreements was contrary to the evidence; and that the restrictions did not have an injurious effect.

We intimate no opinion upon any of the questions raised by these rival contentions, but they point the importance of special and adequate findings in accordance with the prescribed equity practice.

The decree of the District Court is set aside, and the cause is remanded, with directions to the court to state [304 U.S. 55, 58] its findings of fact and conclusions of law as required by Equity Rule 70 1/2, 28 U.S.C.A. following section 723.

It is so ordered.

Decree set aside, and cause remanded.

Non-Price Vertical Restraints

Non-price vertical restraints are generally subject to the rule of reason analysis. Non-price vertical restraints include practices such as termination or non-renewal of a dealer or of a franchise contract, reciprocal dealing, or other vertical territorial restrictions. The legality of such practices depends on a detailed review of the factual circumstances surrounding the restraint to determine whether a practice unreasonably restrains trade.

Section 2 of the Sherman Act — Monopolization

Section 2 of the Sherman Act, found at 15 U.S.C. §2 (1988), states: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire … to monopolize … shall be deemed guilty of a felony.” Thus, Section 2 addresses three offenses: monopolization, attempted monopolization, and conspiracy to monopolize. The focus of attention in this Chapter will be solely on the offense of monopolization.

The monopolization offense has two elements: (i) the possession of monopoly power in a relevant market; and (ii) the willful anticompetitive conduct that creates or perpetuates the monopoly power. Monopoly power is traditionally defined as the power to control market prices or exclude competition. Modern cases, while repeating that formulation, recognize that controlling price and excluding competition are interrelated sources of monopoly power. A relevant market involves both a product or a service and a geographic dimension. The relevant product market is determined principally by considering the reasonable interchangeability of use of the products or can include products interchangeable in production (i.e., if producers can swiftly and inexpensively switch from producing one product to producing the other). The relevant geographic market comprises the locations in which customers can reasonably turn to secure he product. Determining the geographic market depends upon such factors as transportation costs, the need for local sales or service operations, the presence of tariffs or other trade barriers, and the correlation in price movements between different areas.

Because of the difficulty of directly assessing whether a firm has the ability to control price, courts generally appraise monopoly power indirectly, starting with an analysis of market share. A high share of the relevant market will support a presumption of market power. Today, market shares in excess of 70% usually lead to a presumption of monopoly power; market shares below 50% virtually never do, and market shares between 50% and 70% sometimes do, especially as the market share approaches 70%.

In addition to possessing market power, a potential monopolist must also have willfully obtained or maintained that monopoly power in order to violate antitrust laws. However, the nature of the conduct is more important than the monopolist’s intent. Thus, a monopolist that intentionally attains or preserves its power through otherwise fair means, such as low prices, high quality, or clever advertising, does not ordinarily violate Section 2. A violation requires that the means chosen be “predatory” or “anticompetitive.” For example, predatory pricing consists of pricing a product below its relevant cost in order to drive competitors from the market in the short run and then recoup the short-run losses in the long run through monopoly pricing after the competition has bee vanquished. In international business, this practice is sometimes termed as “dumping.” (See Brooke Group v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993)).

 

Case Summary

United States v. Grinnell Corporation Et Al.

Supreme Court of the United States, 384 U.S. 563 (1966)

Grinnell manufactures plumbing supplies and fire sprinkler systems. It also owns 76% of the stock of ADT, 89% of the stock of AFA, and 100% of the stock of Holmes. ADT provides both burglary and fire protection services; Holmes provides burglary services alone; AFA supplies only fire protection service. Each offers a central station service under which hazard-detecting devices installed on the protected premises automatically transmit an electric signal to a central station. The central station is manned 24 hours a day. Upon receipt of a signal, the central station, where appropriate, dispatches guards to the protected premises and notifies the police or fire department direct. There are other forms of protective services. But the record shows that subscribers to accredited central station service (i.e., that approved by the insurance underwriters) receive reductions in their insurance premiums that are substantially greater than the reduction received by the users of other kinds of protection service. In 1961 accredited companies in the central station service business grossed $65,000,000. ADT, Holmes, and AFA are the three largest companies in the business in terms of revenue: ADT (with 121 central stations in 115 cities) has 73% of the business; Holmes (with 12 central stations in three large cities) has 12.5%; AFA (with three central stations in three large cities) has 2%. Thus the three companies that Grinnell controls have over 87% of the business.

Over the years ADT purchased the stock or assets of 27 companies engaged in the business of providing burglar or fire alarm services. Holmes acquired the stock or assets of three burglar alarm companies in New York City using a central station. Of these 30, the officials of seven agreed not to engage in the protective service business in the area for periods ranging from five years to permanently. After Grinnell acquired control of the other defendants, the latter continued in their attempts to acquire central station companies offers being made to at least eight companies between the years 1955 and 1961, including four of the five largest nondefendant companies in the business. When the present suit was filed, each of those defendants had outstanding an offer to purchase one of the four largest nondefendant companies.

In 1906, prior to the affiliation of ADT and Holmes, they made a written agreement whereby ADT transferred to Holmes its burglar alarm business in a major part of the Middle Atlantic States and agreed to refrain forever from engaging in that business in that area, while Holmes transferred to ADT its watch signal business and agreed to limit its activities to burglar alarm service and night watch service for financial institutions. While this agreement was modified several times and terminated in 1947, in 1961 Holmes still restricted its business to burglar alarm service and operated only in those areas which had been allocated to it under the 1906 agreement. Similarly, ADT continued to refrain from supplying burglar alarm service in those areas earlier allocated to Holmes. In 1907 Grinnell entered into a series of agreements with the other defendant companies and with Automatic Fire Protection Co. to the following effect: AFA received the exclusive right to provide central station sprinkler supervisory and waterflow alarm and automatic fire alarm service in New York City, Boston and Philadelphia, and agreed not to provide burglar alarm service in those cities or central station service elsewhere in the United States. Automatic Fire Protection Co. obtained the exclusive right to provide central station sprinkler supervisory and waterflow alarm service everywhere else in the United States except for the three cities in which AFA received that exclusive right, and agreed not to engage in burglar alarm service. ADT received the exclusive right to render burglar alarm and nightwatch service throughout the United States. (Under ADT’s 1906 agreement with Holmes, however, it could not provide burglar alarm services in the areas for which it had given Holmes the exclusive right to do so.) It agreed not to furnish sprinkler supervisory and waterflow alarm service anywhere in the country and not to furnish automatic fire alarm service in New York City, Boston or Philadelphia (the three cities allocated to AFA). ADT agreed to connect to its central stations the systems installed by AFA and Automatic. Grinnell agreed to furnish and install all sprinkler supervisory and waterflow alarm actuating devices used in systems that AFA and Automatic would install, and otherwise not to engage in the central station protection business. AFA and Automatic received 25% of the revenue produced by the sprinkler supervisory waterflow alarm service which they provided in their respective territories; ADT and Grinnell received 50% and 25%, respectively, of the revenue which resulted from such service. The agreements were to continue until February 1954. The agreements remained substantially unchanged until 1949 when ADT purchased all of Automatic Fire Protection Co.’s rights under it for $13,500,000. After these 1907 agreements expired in 1954, AFA continued to honor the prior division of territories; and ADT and AFA entered into a new contract providing for the continued sharing of revenues on substantially the same basis as before. In 1954 Grinnell and ADT renewed an agreement with a Rhode Island company which received the exclusive right to render central station service within Rhode Island at prices no lower than those of ADT and which agreed to use certain equipment supplied by Grinnell and ADT and to share its revenues with those companies. ADT had an informal agreement with a competing central station company in Washington, D.C., ‘that we would not solicit each other’s accounts.’ ADT over the years reduced its minimum basic rates to meet competition and renewed contracts at substantially increased rates in cities where it had a monopoly of accredited central station service. ADT threatened retaliation against firms that contemplated inaugurating central station service. And the record indicates that, in contemplating opening a new central station, ADT officials frequently stressed that such action would deter their competitors from opening a new station in that area.

Held: The entire accredited central station service business, including such services as automatic burglar alarms, automatic fire alarms, sprinkler supervisory service, and watch signal service, was properly treated as a single ‘relevant market’ in determining existence of monopolization, warranting judgment against defendants who exercised monopoly power over 87% of the business.

The Clayton Act

The primary antitrust statute applicable to mergers is Section 7 of the Clayton Act. A merger may occur when one corporation purchases the stock or assets of another corporation to give the acquiring corporation control over the acquired corporation. The combination of two or more corporations to form a new corporation is called a consolidation. A merger occurs when two or more corporations combine, but one of the combining firms remains in existence, and the other becomes part of or merges into the survivor corporation. Another situation exists where one corporation buys another corporation’s stock and both continue to exist. The buyer is the parent and the acquired corporation becomes the subsidiary. In some cases, a smaller corporation may be successful in “swallowing up” a larger corporation.

Section 7 of the Clayton Act prohibits mergers and acquisitions “in any line of commerce or in any activity affecting commerce in any section of the country, [where] the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” The term “line of commerce” refers to products or services offered by the companies involved in the merger and the term “section of the country” refers to the geographic location where the products or services of the merging companies are made available. Once the relevant line of commerce and section of the country are defined, the court will evaluate the acquisition to determine whether it is likely to substantially lessen competition or create a monopoly.

The most common types of mergers are horizontal mergers, vertical mergers, and conglomerate mergers. A horizontal merger occurs when the merging companies are actual competitors in the relevant product and geographic markets (e.g., between direct competitors such as Google and Facebook). By definition, a horizontal merger will eliminate actual competition; however, a horizontal merger does not automatically result in a violation of the antitrust laws. In evaluating its legality, courts will focus on market share and market concentration. If analysis reveals a high market share, a presumption of illegality is created which may be rebutted. The company would have to produce evidence of “other factors” which demonstrates that the market statistics do not reflect the current or future state of competition in the industry or that consumers would actual benefit by permitting the merger.

A vertical merger involves a merger of companies that have a supplier-customer relationship within a potential marketing chain, e.g., Disney and Pixar or by McDonald’s and the supplier of its straws or other paper products. A vertical merger raises antitrust concerns where the merger may eliminate either a source of supply or a purchaser of supplies and which may have the effect of foreclosing the competitive viability of the remaining companies in the market.

Factors considered by courts in determining the legality of vertical mergers will include trends in the industry, entry barriers, the number of competing suppliers, and the number of purchasers in the relevant market.

Conglomerate mergers are mergers that are neither horizontal nor vertical in nature, e.g., Walt Disney Pictures and American Broadcasting Company (ABC). They are categorized into three classifications: pure conglomerate mergers; product extension mergers; and market extension mergers. A pure conglomerate merger involves the merger of companies that are totally unrelated and have no core economic relationship, e.g., oil company merging with a garment company. A product extension merger occurs when two companies produce and sell non-competitive yet complementary products and the addition of the acquired company’s products reflects a logical extension the acquiring company’s product line. A market extension merger is a merger between two companies that manufacture and sell the same product but do not compete with each other in the same geographic market.

Various theories that have been relied on to successfully challenge conglomerate mergers such as entrenchment, reciprocity, and a foreclosure of potential competition. Entrenchment is premised on the theory that when a large company with substantial resources acquires a dominant company in a different market, the acquired firm will become entrenched in the market causing entry barriers and creating a monopoly situation.

The reciprocity theory has been applied in situations where one company agrees to purchase products from a second company if the second company agrees to purchase certain products it needs from the first company. This creates a situation where competitors of the merged company will be foreclosed from markets that are essential to their competitive viability. As a result, a Section 7, Clayton Act analysis may be invoked to ensure against possible violations.

The potential competition doctrine is based on the premise that the elimination of a potential competitor from a target market may lead to substantial lessening of competition. As a general rule, the threat of new competition keeps businesses more competitive. Ordinarily, the potential of a new entrant exerts a pro-competitive effect on companies doing business in a market. However, when a company enters a new market by acquiring another company already in that market, the perceived potential competition is lost (the new company now has an edge over the other existing companies). It is this perception that Section 7 of the Clayton Act seeks to enjoin.

If it can be established that one of the companies to the merger is a failing company, the fact will be considered by the courts as a possible justification for the otherwise anticompetitive merger. The parties seeking protection of the failing company defense have to prove that the company faces a grave probability of business failure and that the failing company has made a good faith effort to find alternative purchasers. The failing company defense reflects the view that the possible threat to competition by a merger is preferable to the impact on competition that would be caused if the failing company were to go out of business.

 

Case Summary

Cargill, Inc. & Excel Corporation v. Monfort Of Colorado, Inc.

Supreme Court of the United States, 479 U.S. 2014 (1986)

The Nation’s fifth largest beef packer brought action under Clayton Act to enjoin merger between second and third largest beef packers.

Section 16 of the Clayton Act entitles a private party to sue for injunctive relief against “threatened loss or damage by a violation of the antitrust laws.” Respondent, the country’s fifth-largest beef packer, brought an action in Federal District Court under §16 to enjoin the proposed merger of petitioner Excel Corporation, the second-largest packer, and Spencer Beef, the third-largest packer. Respondent alleged that it was threatened with a loss of profits by the possibility that Excel, after the merger, would lower its prices to a level at or above its costs in an attempt to increase its market share. During trial, Excel moved for dismissal on the ground that respondent had failed to allege or show that it would suffer antitrust injury, but the District Court denied the motion. After trial, the District Court held that respondent’s allegation of a “price-cost squeeze” that would severely narrow its profit margins constituted an allegation of antitrust injury. The Court of Appeals affirmed, holding that respondent’s allegation of a “price-cost squeeze” was not simply one of injury from competition but was a claim of injury by a form of predatory pricing in which Excel would drive other companies out of the market.

Held: 1.

A private plaintiff seeking injunctive relief under section 16 must show a threat of injury “of the type the antitrust laws were designed to prevent and that flows from that which makes defendants’ acts unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701. 2. The proposed merger does not constitute a threat of antitrust injury. A showing, as in this case, of loss or damage due merely to increased competition does not constitute such injury. And while predatory pricing is capable of inflicting antitrust injury, here respondent neither raised nor proved any claim of predatory pricing before the District Court, and thus the Court of Appeals erred in interpreting respondent’s allegations as equivalent to allegations of injury from predatory conduct. 3. This Court, however, will not adopt in effect a per se rule denying competitors standing to challenge acquisitions on the basis of predatory-pricing theories. Nothing in the Clayton Act’s language or legislative history suggests that Congress intended this Court to ignore injuries caused by such anticompetitive practices as predatory pricing.

Section 3 of the Clayton Act (15 USC §§12-27), reflects standards similar to those found in Section 1 of the Sherman Act in that it prohibits exclusive dealing arrangements and tying arrangements that may substantially lessen competition or tend to create a monopoly.

A tie-in agreement may occur when a supplier agrees to sell one product only on the condition that the buyer will also purchase a second product. (In franchising, the tying “product” may be a trademark or a service mark.) Tying is an important issue in the business format called franchising. The first product is referred to as the “tying product” while the second product is referred to as the “tied product.” The seller must have an economic interest in the tied product. Tie-in agreements are normally challenged under a rule of reason analysis. As a practical matter, courts will examine the likely effects that the tie-in will have on competition in the relevant market.

For example, a tie-in arrangement may be upheld in a franchise relationship where the franchisor attempts to justify the practice because of sophistication regarding specifications; issues relating to quality control; the necessity of product uniformity; where the product and the franchise is “practically indistinguishable” justification (in essence, there is only “one product”); or under the “new business” exception (usually, for no more than a 6-month period).

A tying arrangement may also be justified in a true “turn key” operation—where a franchisee purchases a fully equipped business operation—but stocked with no more “tied products” than might be required to do business for a limited period of time (normally, no more than a 3-month period).

An exclusive dealership is a situation where a manufacturer agrees with a dealer not to sell its products to other competing dealers within a certain geographic area. Generally, such arrangements are not in violation of antitrust laws absent an anticompetitive purpose. The law recognizes a manufacturer’s right to distribute his products to specific dealers of its own choice.

 

Case Summary

Illinois Tool Works, Inc. v. Independent Ink, Inc.

Supreme Court of the United States, 547 U.S. 28 (2006)

Petitioners manufacture and market printing systems that include a patented printhead and ink container and unpatented ink, which they sell to original equipment manufacturers who agree that they will purchase ink exclusively from petitioners and that neither they nor their customers will refill the patented containers with ink of any kind. Respondent developed ink with the same chemical composition as petitioners’ ink. After petitioner Trident’s infringement action was dismissed, respondent filed suit seeking a judgment of noninfringement and invalidity of Trident’s patents on the ground that petitioners are engaged in illegal “tying” and monopolization in violation of §§ 1 and 2 of the Sherman Act. Granting petitioners summary judgment, the District Court rejected respondent’s argument that petitioners necessarily have market power as a matter of law by virtue of the patent on their printhead system, thereby rendering the tying arrangements per se violations of the antitrust laws. After carefully reviewing this Court’s tying-arrangements decisions, the Federal Circuit reversed as to the §1 claim, concluding that it had to follow this Court’s precedents until overruled by this Court.

Held:

Because a patent does not necessarily confer market power upon the patentee, in all cases involving a tying arrangement, the [***31] plaintiff must prove that the defendant has market power in the tying product.

(a) Over the years, this Court’s strong disapproval of tying arrangements has substantially diminished, as the Court has moved from relying on assumptions to requiring a showing of market power in the tying product. The assumption in earlier decisions that such “arrangements serve hardly any purpose beyond the suppression of competition,” Standard Oil Co. of Cal. v. United States, 337 U.S. 293, 305-306, 69 S. Ct. 1051, 93 L. Ed. 1371, was rejected in United States Steel Corp. v. Fortner Enterprises, Inc., 429 U.S. 610, 622, 97 S. Ct. 861, 51 L. Ed. 2d 80 (Fortner II), and again in Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 2, 104 S. Ct. 1551, 80 L. Ed. 2d 2, both of which involved unpatented tying products. Nothing in Jefferson Parish suggested a rebuttable presumption of market power applicable to tying arrangements involving a patent on the tying good.

(b) The presumption that a patent confers market power arose outside the antitrust context as part of the patent misuse doctrine, and migrated to antitrust law in Inter- national Salt Co. v. United States, 332 U.S. 392, 68 S. Ct. 12, 92 L. Ed. 20. See also Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 62 S. Ct. 402, 86 L. Ed. 363, 1942 Dec. Comm’r Pat. 733; United States v. Loew’s Inc., 371 U.S. 38, 83 S. Ct. 97, 9 L. Ed. 2d 11.

(c) When Congress codified the patent laws for the first time, it initiated the untwining of the patent misuse doctrine and antitrust jurisprudence. At the same time that this Court’s antitrust jurisprudence continued to rely on the assumption that tying arrangements generally serve no legitimate business purpose, Congress began chipping away at that assumption in the patent misuse context from whence it came. Then, four years after Jefferson Parish repeated the presumption that patents confer market power, Congress amended the Patent Code to eliminate it in the patent misuse context. While that amendment does not expressly refer to the antitrust laws, it invites reappraisal of International Salt’s per se rule. After considering the congressional judgment reflected in the amendment, this Court concludes that tying arrangements involving patented products should be evaluated under the standards of cases like Fortner II and Jefferson Parish rather than the per se rule in Morton Salt and Loew’s. Any conclusion that an arrangement is unlawful must be supported by proof of power in the relevant market rather than by a mere presumption thereof.

(d) Respondent’s alternatives to retention of the per se rule–that the Court endorse a rebuttable presumption that patentees possess market power when they condition the purchase of the patented product on an agreement to buy unpatented goods exclusively from the patentee, or differentiate between tying arrangements involving requirements ties and other types of tying arrangements–are rejected.

(e) Because respondent reasonably relied on this Court’s prior opinions in moving for summary judgment without offering evidence of the relevant market or proving petitioners’ power within that market, respondent should be given a fair opportunity to develop and introduce evidence on that issue, as well as other relevant issues, when the case returns to the District Court. 396 F.3d 1342, vacated and remanded.

The Federal Trade Commission Act

The Federal Trade Commission Act (15 USC §§41-51) was enacted in 1914. Section 5(a)(1) prohibits “unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.” The Act also created the Federal Trade Commission (FTC), an administrative agency with broad powers of enforcement of antitrust laws. The FTC is charged with exclusive authority to enforce Section 5 of the FTC Act or to seek damages for such violations. The public has no right to bring an action under the FTC Act; although FTC actions frequently arise on the basis of consumer complaints, often posted on the FTC website.

 

Case Study

Lippa’s, Inc. v. Lenox, Inc.

United States District Court for the District of Vermont, 305 F. Supp. 182 (1969)

Procedural Posture

Defendant moved to dismiss plaintiff’s private antitrust action on the grounds that service was improper and the statute of limitations had run.

Overview

Plaintiff retailer brought a private antitrust action against defendant manufacturer over its resale price maintenance system, a part of which prohibited transshipping. Defendant filed a motion to dismiss contending service was improper and the statute of limitations had run. The court denied defendant’s motion. Defendant was properly served under the Clayton Act §12, 15 U.S.C.S. §22, and under § 5(b) a pending Federal Trade Commission (FTC) proceeding brought under the Federal Trade Commission Act (FTCA) for retail price maintenance against defendant tolled the statute of limitations. Section 5(b) tolls the statute of limitations in a private action during the pendency of a related proceeding instituted by the United States and for one year after. Proceedings have tolling effect if they are brought to restrain, punish or prevent antitrust law violations. There was no doubt that the FTC complaint was brought either to prevent or restrain violations of any of the antitrust laws. The private action need be only substantially the same, not identical, to satisfy the statute.

Outcome

Defendant’s motion to dismiss was denied because plaintiff’s private antitrust action was substantially similar to the government’s pending proceeding, and the statute of limitations was tolled.

Other Important Statutes

Several other statutes are relevant to the discussion of antitrust. While they will not be discussed in detail, they are nevertheless important in determining proper or improper behavior on the part of market participants.

• The Robinson-Patman Act (1936), amending Section 2 of the Clayton Act, dealing with price discrimination;
• The Miller-Tydings Act (1937), amending Section 1 of the Sherman Act, exempting resale price maintenance agreements (so-called “fair trade” agreements which are no longer valid) between a manufacturer and a dealer;
• The Cellar-Kefauver Act (1952), dealing with anti-merger provisions;
• The Bank Merger Act of 1966, requiring that all bank mergers must be approved in advance by the banking regulatory agency having jurisdiction, such as the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and the Comptroller of the Currency;
• The Hart-Scott-Rodino Act of 1976 introduced a pre-merger requirement into the area of mergers, requiring that both the acquiring company with sales of $100 million and the acquired firm with sales of $10 million or more, must file a notice of merger with the Department of Justice and the FTC 30 days before the merger is finalized.

 

Ethical Considerations

Use Of “Likeness”

Is it ethical for a university to profit from using the “likeness” of one its its athletes without compensating the athlete? Should the award of a scholarship be considered “enough” compensation? Several courts have ruled that such practices violate the Sherman Act’s prohibition against “contracts, combinations or conspiracies” in restraint of trade.

Per Se Rule

Should the “per se” rule in antitrust cases be eliminated? Why shouldn’t the government be required to prove anti-competitive effects in all cases arising under the antitrust laws?

Antitrust v. Labor Law

Do some research on the “non-statutory labor exemption” from antitrust. Do you agree that the collective bargaining process should “trump” the application of antitrust rules to a specific transaction? Under what circumstances?

 

Questions

1. What rule did the Court enunciate in the Standard Oil case, found above.
2. What is the import of the Court’s finding that Microsoft “did not export the copies of Windows installed on the foreign-made computers in question”?
3. What are treble damages in antitrust enforcement cases? When is it appropriate for a court to order treble damages?
4. Why doesn’t a court analyze antitrust cases under a “per se” rule?
5. Find a case in the area of sports law involving antitrust. What rule did the court employ in its analysis.
6. What types of conduct might certain business, otherwise exempted from antitrust scrutiny, engage in that would be a violation if committed by another business entity not so exempted?
7. Outline the three areas of analysis under the “business judgment rule.”
8. What is the danger of permitting a car manufacturer to purchase business that supply parts necessary to the final construction of an automobile?
9. Provide an example of the “practically indistinguishable” exception to the rule against an illegal tie-in.
10. Find the website of the FTC and cite some recent examples of consumer complaints regarding dangerous products.