1. 49-1 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2. 49-2 11 Administrative Law The Federal Trade Commission Act and Consumer Protection Laws Antitrust: The Sherman Act The Clayton Act, The Robinson-Patman Act, and Antitrust Exemptions and Immunities Employment Law Environmental Regulation Regulation of Business P A R T

3. 49-3 Antitrust: The Sherman Act PA E TR HC 49 Monopoly is a terrible thing, till you have it. Rupert Murdoch, The New Yorker magazine (1979)

4. 49-4 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

5. 49-5 Federal antitrust laws apply only to business behavior having some significant impact on interstate or foreign commerce –Easy standard to meet Federal antitrust laws have been applied extensively to activities affecting the international commerce of the United States Jurisdiction

6. 49-6 Sherman Act violations may lead to criminal prosecutions or civil litigation by federal government through Department of Justice –Violations also may lead to civil suits filed by private parties Most antitrust cases settled without trial through nolo contendere pleas in criminal cases and consent decrees in civil cases Types of Cases

7. 49-7 To 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 law Civil cases require proof by evidence of either an anticompetitive effect or an unlawful purpose Proof

8. 49-8 Private individuals and Department of Justice (DOJ) may seek such injunctive relief Private plaintiffs must first demonstrate they have standing to sue through proof of a direct antitrust injury Clayton Act Section 4 permits private plaintiffs injured by Sherman Act or Clayton Act violations may recover treble damages plus court costs and attorney’s fees Civil Litigation

9. 49-9 Section 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 Action

10. 49-10 Sherman Act applies only to behavior that unreasonably restrains competition –Two approaches: per se and rule of reason Per 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 Analysis

11. 49-11 Requires detailed inquiry into actual competitive effects of defendant’s actions, including any justification or defense that defendant may advance Rule of Reason Analysis Activity violates § 1 if significant anticompetitive effect not offset by positive effect on market No violation if no anticompetitive effect

12. 49-12 Attempts 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 illegal Vertical price-fixing should be analyzed under a rule of reason analysis Price-Fixing

13. 49-13 Agreements among competitors to divide up an available market by allocating territories or certain customers are illegal per se Courts 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 ends Horizontal Division of Markets

14. 49-14 Manufacturers may unilaterally assign exclusive territories to dealers or limit the dealerships in a particular geographic area However, attempts by manufacturers to control product distribution (vertical nonprice restraints) in other ways may be illegal under a rule of reason analysis Vertical Restraints on Distribution

15. 49-15 A firm may refuse to deal with certain firms as a unilateral action Illegal 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 competitor Boycotts and Refusals to Deal

16. 49-16 A 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 Act –Common tool in franchising agreements –Required 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 business Tying Agreements

17. 49-17 Reciprocal 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 seller Either agreement is illegal if market power is anticompetitive Dealing Agreements

18. 49-18

19. 49-19 Sherman 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 accident Having a monopoly is not illegal, but the act of monopolization is illegal –Thus intent to monopolize is a key element Monopolization

20. 49-20 Thought Questions Does 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?