Learning Objectives
Understand the purpose of the Sherman Act
Explain the terminology of antitrust regulation, including rule of reason (compared to per se) analysis, price-fixing, boycotts, and restraints on competition
Describe monopolization
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Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11Administrative LawThe Federal Trade Commission Act and Consumer Protection LawsAntitrust: The Sherman ActThe Clayton Act, The Robinson-Patman Act, and Antitrust Exemptions and ImmunitiesEmployment LawEnvironmental RegulationRegulation of BusinessPARTAntitrust: The Sherman ActPAETRHC49Monopoly is a terrible thing, till you have it.Rupert Murdoch,The New Yorker magazine (1979)Learning ObjectivesUnderstand the purpose of the Sherman ActExplain the terminology of antitrust regulation, including rule of reason (compared to per se) analysis, price-fixing, boycotts, and restraints on competitionDescribe monopolization Federal antitrust laws apply only to business behavior having some significant impact on interstate or foreign commerceEasy standard to meetFederal antitrust laws have been applied extensively to activities affecting the international commerce of the United StatesJurisdictionSherman Act violations may lead to criminal prosecutions or civil litigation by federal government through Department of JusticeViolations also may lead to civil suits filed by private partiesMost antitrust cases settled without trial through nolo contendere pleas in criminal cases and consent decrees in civil casesTypes of CasesTo get a conviction, government must prove an anticompetitive effect resulted from the alleged misconduct and that defendant had a criminal intent“Knowledge of [act’s] probable consequences” rather than specific intent to violate antitrust lawCivil cases require proof by evidence of either an anticompetitive effect or an unlawful purposeProofPrivate individuals and Department of Justice (DOJ) may seek such injunctive reliefPrivate plaintiffs must first demonstrate they have standing to sue through proof of a direct antitrust injuryClayton Act Section 4 permits private plaintiffs injured by Sherman Act or Clayton Act violations may recover treble damages plus court costs and attorney’s feesCivil LitigationSection 1 of the Sherman Act states that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations is declared to be illegal.”Section 1: Concerted ActionSherman Act applies only to behavior that unreasonably restrains competitionTwo approaches: per se and rule of reasonPer se (by law) violations are conclusively presumed to violate § 1 of the Sherman Act because the actions always have a negative effect on competition and cannot be excused or justified Per Se AnalysisRequires detailed inquiry into actual competitive effects of defendant’s actions, including any justification or defense that defendant may advanceRule of Reason AnalysisActivity violates § 1 if significant anticompetitive effect not offset by positive effect on marketNo violation if no anticompetitive effectAttempts by competitors to alter market forces by price control is per se illegal Attempts by manufacturers to control resale price of products (resale price maintenance) is per se illegalVertical price-fixing should be analyzed under a rule of reason analysisPrice-FixingAgreements among competitors to divide up an available market by allocating territories or certain customers are illegal per seCourts may distinguish naked restraints, that have no other purpose than to restrain competition, from ancillary restraints that are a necessary part of a larger joint undertaking serving procompetitive endsHorizontal Division of MarketsManufacturers may unilaterally assign exclusive territories to dealers or limit the dealerships in a particular geographic areaHowever, attempts by manufacturers to control product distribution (vertical nonprice restraints) in other ways may be illegal under a rule of reason analysisVertical Restraints on DistributionA firm may refuse to deal with certain firms as a unilateral actionIllegal joint restraints on trade occur when two or more companies agree to refuse to deal with others, deal with others only on certain terms and conditions, or coerce suppliers or customers not to deal with a certain competitorBoycotts and Refusals to DealA seller who refuses to sell a buyer one product (tying product) unless buyer also agrees to purchase a different product (tied product) may have violated both § 1 of the Sherman Act and § 3 of the Clayton ActCommon tool in franchising agreementsRequired elements for violation of law: two distinct products and both must be purchased, seller’s market power, and tied product is important to seller’s businessTying AgreementsReciprocal dealing agreement: buyer exploits its purchasing power by making its purchases from suppliers conditional on reciprocal purchases (seller must purchase buyer’s products)Exclusive dealing agreement: seller requires buyer to buy product only from sellerEither agreement is illegal if market power is anticompetitiveDealing AgreementsSherman Act § 2 prohibits monopolization:Willful acquisition or maintenance of monopoly power in the relevant market rather than monopoly as a consequence of superior product, business acumen, or historical accidentHaving a monopoly is not illegal, but the act of monopolization is illegalThus intent to monopolize is a key elementMonopolizationThought QuestionsDoes America have a free market system?In the antitrust debate, are you a Chicago School theorist or a traditional theorist?Do you agree with the Microsoft ruling?