PowerPoint Slides to Accompany ESSENTIALS OF BUSINESS AND ONLINE COMMERCE LAW 1 st Edition by Henry R. Cheeseman

1. PowerPoint Slides to AccompanyESSENTIALS OF BUSINESS ANDONLINE COMMERCE LAW1st Editionby Henry R. Cheeseman Chapter 21 Antitrust Law Slides developed by Les Wiletzky

2. Antitrust Laws A series of laws enacted to limit anticompetitive behavior in almost all industries, businesses, and professions operating in the United States.

3. Federal Antitrust Laws • Sherman Act of 1890 • Clayton Act of 1914 • Federal Trade Commission (FTC) Act of 1914 • Robinson-Patman Act of 1930

4. Antitrust Enforcement • The federal antitrust statutes are broadly drafted to: • reflect the government’s enforcement policy • allow the government to respond to economic, business, and technological changes • Each administration adopts an enforcement policy for antitrust laws • Antitrust laws are enforced more stringently at some times than at other times

5. Antitrust Penalties • Federal antitrust laws provide the following penalties: • Criminal sanctions • Civil penalties • Private civil actions • Effect of a government judgment

6. Section 1 of the Sherman Act: Restraints of Trade • Prohibits contracts, combinations, and conspiracies in restraint of trade • To violate Section 1, the restraint must be found to be unreasonable under either of two tests: • Rule of reason • Per se rule • Requires the concerted action of two or more parties

7. Rule of Reason A rule that holds that only unreasonable restraints of trade violate Section 1 of the Sherman Act Adopted by the U.S. Supreme Court in Standard Oil Company of New Jersey v. United States Per se Rule A rule that is applicable to those restraints of trade considered inherently anticompetitive Once this determination is made, the court will not permit any defenses or justifications to save it Rules to Determine Lawfulness of a Restraint

8. Horizontal Restraint of Trade Agreement to restrain trade Competitor No. 1 Competitor No. 2 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.

9. Horizontal restraints of trade include: • Price-Fixing – occurs where competitors in the same line of business agree to to set the price of the goods they sell. A per se violation. • Division of Markets – occurs when competitors agree that each will serve only a designated portion of the market. A per se violation. • Group Boycott – occurs when two or more competitors at one level of distribution agree not to deal with others at another level of distribution.

10. Group Boycott by Sellers: Agreement Not to Deal With a Customer Agreement not to deal with a customer Seller Competitor No. 1 Seller Competitor No. 2 Boycotted Customer

11. Group Boycott by Purchasers: Agreement Not to Deal With a Supplier Boycotted Supplier Purchaser Competitor No. 1 Purchaser Competitor No. 2 Agreement not to deal with a supplier

12. Occurs when two or more parties on different levels of distribution enter into a contract, combination, or conspiracy to restrain trade Vertical Restraints of Trade Supplier Agreement to restrain trade Customer

13. Forms of Vertical Restraint (1 of 2) • Resale Price Maintenance (vertical price- fixing) – 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 • A per se violation of Section 1 of the Sherman Act

14. Forms of Vertical Restraint (2 of 2) • Nonprice Vertical Restraints – are unlawful under Section 1 of the Sherman Act if their anticompetitive effects outweigh their pro-competitive effects • Include situations where a manufacturer assigns exclusive territories to retail dealers, or • Limits the number of dealers that may be located in a certain territory

15. Defenses to Section 1 of the Sherman Act (1 of 2) • Unilateral Refusal to Deal • A unilateral choice by one party not to deal with another party • This does not violate Section 1 of the Sherman Act because there is no concerted action with others • This rule was announced in United States v. Colgate & Co. • Often referred to as the Colgate doctrine

16. Defenses to Section 1 of the Sherman Act (2 of 2) • Conscious Parallelism • Occurs when two or more firms act the same but without concerted action • This does not violate Section 1 because there has been no concerted action • Noerr Doctrine • Two or more parties may petition the government to enact laws or to take other action

17. Act: Monopolization Section 2 of the Sherman • Prohibits the act of monopolization as well as attempts and conspiracies to monopolize • Can be violated by the conduct of one firm • The following elements are necessary to prove a defendant in violation of Section 2: • Relevant market • Monopoly power • Act of monopolizing

18. Defining the Relevant Market • Relevant product or service market – includes substitute products or services that are reasonably interchangeable with the defendant’s products or services • Relevant geographical market – the area in which the defendant and its competitors sell the product or service

19. Monopoly Power • The power to control prices or exclude competition • Measured by the market share the defendant possesses in the relevant market

20. Willful Act of Monopolizing • A required act for there to be a violation of Section 2 of the Sherman Act • e.g., predatory pricing • Possession of monopoly power without such an act does not violate Section 2 of the Sherman Act

21. Defenses to Monopolization • Innocent Acquisition • Superior business acumen • Monopoly that is acquired by superior skill, foresight, or industry • Natural Monopoly • Monopoly that is thrust upon the defendant • Small market that can support only one competitor

22. Section 7 of the Clayton Act: Mergers • Section 7 of the Clayton Act 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.”

23. Mergers (continued) • The following elements are necessary to prove a violation of Section 7 of the Clayton Act: • Line of commerce – the market that will be affected by the merger • Section of the country – geographical market that will be affected by the merger • Probability of a substantial lessening of competition

24. Horizontal Mergers A merger between two or more companies that compete in the same business and geographic market United States v. Philadelphia National Bank established the presumptive illegality test Vertical Mergers A merger that integrates the operations of a supplier and a customer Backward vertical merger The customer acquires the supplier Forward vertical merger The supplier acquires the customer Types of Mergers (1 of 2)

25. Market Extension Mergers A merger between two companies in similar fields whose sales do not overlap Geographical market extension merger Product market extension merger Conglomerate Mergers A merger that does not fit into any other category A merger between firms in totally unrelated businesses Unfair advantage theory Types of Mergers (2 of 2)

26. Defenses to Section 7 Actions The Failing Company Doctrine The Small Company Doctrine

27. Premerger Notification • Hart-Scott-Rodino Antitrust Improvement Act of 1976 • An act that requires certain firms to notify the FTC and the Department of Justice in advance of a proposed merger • Unless the government challenges the proposed merger within 30 days, the merger may proceed

28. Section 3 of the Clayton Act: Tying Arrangements • A tying arrangement is a restraint of trade where a seller refuses to sell one product to a customer unless the customer agrees to purchase a second product from the seller • Section 3 of the Clayton Act prohibits tying arrangements involving sales and leases of goods • i.e., tangible personal property

29. Tying Arrangements (continued) • Section 1 of the Sherman Act prohibits tying arrangements involving goods, services, intangible property, and real property • A tying arrangement is lawful if there is some justifiable reason for it

30. Section 2 of the Clayton Act: Price Discrimination • Commonly referred to as the Robinson-Patman Act • Sellers often offer favorable terms to their preferred customers • Price discrimination occurs if the seller does this without just cause • Illegal if it results in substantially lessening competition or creating a monopoly in any line of commerce

31. Direct Price Discrimination To prove a violation of Section 2(a) of the Robinson-Patman Act, the following elements of price discrimination must be shown: • The defendant sold commodities of like grade and quality, • to two or more purchasers at different prices at approximately the same time, and • the plaintiff suffered injury because of the price discrimination

32. Indirect Price Discrimination • A form of price discrimination that is less readily apparent than direct forms of price discrimination • e.g., favorable credit terms, freight charges, and such to favored customers • These are violations of the Robinson-Patman Act

33. Defenses to Section 2(a) Actions • The Robinson-Patman Act establishes three statutory defenses to Section 2(a) liability: 1. Cost justification defense 2. Changing conditions defense 3. Meeting the competition defense

34. Section 5 of the Federal Trade Commission Act: Unfair Methods of Competition • Section 5 of the FTC Act – prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce • Section 5 is broader than the other antitrust laws • The FTC is exclusively empowered to enforce the FTC Act

35. Exemptions From Antitrust Laws • Statutory Exemptions – Exemptions from antitrust laws that are expressly provided in statutes enacted by Congress • Implied Exemptions – Exemptions from anti-trust 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

36. State Antitrust Laws • Most states have enacted antitrust statutes • State statutes are usually patterned after the federal antitrust statutes • State antitrust laws are used to attack anti-competitive activity that occurs in intrastate commerce