Antitrust Legislation // White Collar Firm
Competition law or antitrust law, seeks to accomplish three main goals: 1) to prohibit agreements or practices that restrict free trading and competition between business entities. This component includes prohibiting practices that operate as cartels; 2) to ban abusive behavior by a company that dominates a market, or anti-competitive practices that tend to lead to such a dominant position. The practices that are regulated can include price gouging, predatory pricing, refusal to deal and others; 3) to supervise the mergers and acquisitions of large corporations. Any transactions that can threaten the competitive process can be banned altogether or if approved, they are subject to certain obligations or limitations that seek to remedy this effect.
Although competition acts can vary with jurisdiction, protecting the interests of the consumer and ensuring competition in the market economy are considered important policies and are generally present in anti-trust acts.
The term anti-trust arose because the large corporations used trusts in order to conceal the nature of their business arrangements. Big trusts became synonymous with big monopolies, the perceived threat to democracy and the free market. These trusts led to the Sherman Act and the Clayton Act. These laws, in part, codified past American and English common law (judge-made law) of restraints of trade. Because The Sherman Act did not have the intended immediate effects, the Clayton Act of 1914 was passed in order to supplement it. In the Clayton Act, specific types of abusive conduct were listed which included: price discrimination (section 2); exclusive dealings (section 3); and mergers which have the effect of substantially lessening competition (section 7). Both acts are now codified under Title 15 of the United States Code.
Both of the acts are brief and not highly specific. Therefore, the responsibility for developing the law was left to the federal courts. Section 1 of the Sherman Act prohibits “agreements, conspiracies or trusts in restraint of trade,” making them a crime. Not every alleged agreement is treated alike. The Supreme Court has interpreted this section to prohibit arrangements that have the effect of unreasonably manipulating trade, but noting that there are two different kinds of conduct. There are agreements which are very likely to raise costs to consumers, and those that might, but were not highly likely to be harmful.
The first type of conduct was referred to as being Per se illegal conduct. Per se illegal conduct has generally consisted of horizontal price-fixing or territorial division agreements. The second type of conduct can only merit relief if the plaintiff satisfies the “Rule of Reason.” This rule requires that the plaintiff prove that the agreement caused him/her economic harm. The current analysis involves a “quick-look” rule of reason. Where conduct is not clearly per se illegal, but is arguably tantamount to price fixing, territorial division, or otherwise lacks a semblance of legitimacy, the court may apply a modified rule of reason. By taking a “quick look,” economic harm is inferred through the nature of the conduct. This then shifts the burden to the defendant to prove that the conduct is harmless (making it an affirmative defense). The quick-look became a popular way of disposing of cases where the conduct was in a grey area between per se illegality, and demonstrable harmful according to the rule of reason.
When attempting to infer a conspiracy, the courts have employed two rationales. The first involves holding plaintiffs to a higher standard during the pleadings. Under old Section 1 precedent, the amount of evidence that was required to prove conspiracy was unsettled. Since the 70s, courts have placed higher burdens on the plaintiffs, thus giving defendants to antitrust cases and opporunity to paint the cases in their favor before a substantial portion of discovery is conducted. This practice protects defendants from costly discovery while possibly depriving plaintiffs of a valuable tool to acquire evidence. The second tool that courts have employed is their use of various definitions of markets. Defining the market is mandatory in rule of reason cases. The plaintiff needs to establish both that a conspiracy is harmful and that there is a market relationship between conspirators to prove that their conduct falls with in the per se rule.
The Clayton Act sought to capture anticompetitive conduct in its early stages by prohibiting certain practices not considered in the competitive market’s best interest. The practices that the act probits include: price discrimination (between different purchasers if such discrimination substantially lessens competition or otherwise is demonstrable of a monopoly in any line of commerce); sales where the buyer or lessee did not deal with the competitors of the seller or lessor (exclusive dealings) or where the buyer also purchases a different product (tying) causing competition to substantially lesson; mergers and acquisitions that have the effect of substantially lessens competition; and a prohibition of any individual being a director of two or more competing corporations.
The differences between the act are noteworthy. For example, Clayton section 7 allows for greater regulation of mergers than Sherman section 2 would alone, since it doesn’t require a merger-to-monopoly before finding there is a violation; it allows the Federal Trade Commission (FTC) and the Department Of Justice (DOJ) to regulate all mergers, and allows for government discretion in approving a merger. The test used for whether a merger is approved is based on the Herfindahl-Hirschman Index (HHI) test for market concentration.
Another important difference between the Clayton act and its predecessor is that the Clayton act contained safe harbors for union activities. Section 6 of the Act exempts labor unions and agricultural organizations. Therefore, certain practices such as boycotts, strikes, picketing and collective bargaining do not fall under the statute.
Antitrust law was bolstered by the Celler-Kefauver Act. The Celler-Kefauver Act was passed in large part to close a gap regarding certain acquisitions where firms were not direct competitors. Because the Clayton Act prohibited stock purchase mergers that resulted in substantially lessening competition, firms were able to circumvent that by buying a competitor’s assets. The Celler-Kefauver Act prohibited this practice if competition would be reduced as a result of the asset acquisition.
The Robinson-Patman Act or Anti-Price Discrimination Act of 1936 is a federal law that prohibits what were considered, at the time it was passed, to be anticompetitive practices by producers, more specifically price discrimination. In general, the Act prohibits sales that discriminate in price on the sale of goods to equally-situated distributors when the effect of such sales is to reduce competition. Price means net price and includes all compensation paid. The seller may not throw in additional goods or services. Injured parties or the US government may bring an action under the Act.
A plaintiff suing under the act for criminal sanctions would have the burden of proving that the sale involved: 1) discrimination in price; 2) on at least 2 consummated sales; 3) from the same seller; 4) to 2 different purchasers; 5) sales must cross state lines; 6) sales must be contemporaneous; 7) of “commodities” of like grade and quality; 8) sold for “use, consumption, or resale” within the United States; and 9) the effect may be “substantially to lessen competition or tend to create a monopoly in any line of commerce.” Sales to Military Exchanges and Commissaries are exempt from the act. The Act provided for criminal penalties, but contained a specific exemption for cooperative associations. Defenses to the Act include both cost justification and matching the price of a competitor. In practice, the “harm to competition” requirement often the point the case turns on.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) is a set of amendments to the Antitrust acts. The Act provides that before certain mergers, tender offers, or other acquition transactions are finalized, both parties are required to file a “Notification and Report Form” with the FTC and the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice. The filing describes the proposed transaction and the parties to it. After the report is filed the, a 30-day waiting period then begins during which time those regulatory agencies may request further information in order to help them assess whether the proposed transaction would violate federal antitrust laws. The act makes it unlawful for the transaction to be finalized during the waiting period. While the waiting period is generally 30 days, the regulators may request additional time to review additional information and the filing parties may request that the waiting period for a particular transaction be terminated early.
The general rule was a filing was required if three tests are met; (1) the transaction affects commerce; (2) either (a) one of the parties has sales each year or assets of $100 million or more [as of 2008, raised to $126.3 million] and the other party has sales or assets of $10 million or more [2008:$12.6 million]; or (b) the transaction is valued at $200 million or more [2008:$252.3 million]; and (3) the value of the transaction is $50 million or more [2008:$63.1 million]. Where either the FTC or the Antitrust Division believes there may be significant anticompetitive consequences, either agency may require more information from the parties to the merger. Also, Title III of the Act allows states to sue companies in federal court under antitrust laws on behalf of their citizens.