1. The Legal Environment of Business
A Critical Thinking Approach
5th Edition
Nancy K. Kubasek
Bartley A. Brennan
M. Neil Browne

2. THE LEGAL ENVIRONMENT OF BUSINESS
CHAPTER 23
Antitrust Laws

3. Introduction to Antitrust Law
TRUSTS - Business arrangements favoring owners of several companies
Stocks transferred to trustees
Trustees managed businesses jointly, on behalf of owners, to maximize profits
Trusts became larger, and aggressively squeezed competitors

4. Public Concern – Congressional Action
News accounts of trusts and their monopolistic practices alarmed the public
Congress responded with the Sherman Act of 1890
The Act was the first anti- trust law in the U.S.

5. Law and Economic Theory
Chicago School
Efficiency is the key consideration
Harvard School
Do not allow domination by one participant in the market

6. Goals of Antitrust Laws
Preserve small business
Keep many sellers and buyers: more competition is better
Prevent concentration of power
Preserve local control
Promote maximization of consumer welfare
Note: Some of these goals conflict.

7. Public Enforcement Department of Justice Sherman Act Clayton Act
Federal Trade Commission
Clayton act
FTCA
Remedies sought:
injunction;
consent decree
Penalties: fines and incarceration

8. Microsoft Case State attorneys tried to prove that Microsoft attempted
To eliminate competitio under Clayton Act
To fix prices under Sherman Act
And engaged in other anticompetitive practices.
Settlement allowed Microsoft to remain one company with certain conditions

9. Private Enforcement Clayton Act: Section 4 Triple amount of damages
Attorneys fees
Brought by individuals or business
Class action
Parens patriae

10. Exemptions State Action Local Government Regulated Industries
Export Activities
Joint efforts by business to seek Government action
Regulated Industries
Labor Unions
Intrastate Activities
Agricultural activities
Baseball

11. The Sherman Act of 1890
Section 1 - Combinations and Restraints of Trade
Combination, contract, or conspiracy
Collusion
Conscious parallelism
Unreasonable restraint of trade
Interstate commerce

12. Court Standard: “Rule of Reason”
Indicators:
Nature and purpose of the restraint
Scope of the restraint
Its effect on the business and on competitors
Its intent
Do anticompetitive effects outweigh procompetitive effects?

13. Per Se Standard Horizontal Price-fixing Group boycotts
Tying arrangements
Dividing markets
Is the practice one of the defined types?

14. Horizontal Restraints
Horizontal Division of Markets
Horizontal Boycotts
Horizontal Price-Fixing

15. Vertical Restraints Resale-price maintenance (price-fixing)
Territorial and customer
restrictions
Tying arrangements
(linking of products)
Exclusive-dealings contracts
(comparative substantiality)

16. Monopolies Section 2 of the Sherman Act Monopolies - Test
Prohibits monopolies or attempts to monopolize
Monopolies - Test
Relevant product and geographic market
Overwhelming power
Intent

17. Relevant Product and Geographic Market
Cross-elasticity of demand; substitutability
DuPont and cellophane
Geographic market: the area where defendant’s firm competes head on with others in the previously determined relevant product market.

18. Overwhelming Power Factors: Market share Size of other firms
Pricing structure
Entry barriers
Unique nature of industry

19. Intent to Monopolize Specific conduct Exclude competitors
Raise barriers to entry
Foreseeable consequences of an action
Passive or active

20. The Clayton Act of 1914 Prohibits the following actions:
Price discrimination
Tying arrangements
Mergers and acquisitions that lessen competition
Interlocking directorates

21. Price Discrimination A price below average variable cost
Sales: must be two actual sales
Commodity
Interstate commerce
Injury to competition
Primary-line injury
Secondary- line injury
Tertiary- line injury

22. Defenses to Clayton Act Violations
“Meeting-the-Competition”
Made in good faith
To meet equally low price of a competitor

23. Mergers and Acquisitions
What drives mergers?
Undervalued assets
Diversification
Tax credits
Economies of scale

24. Legality of Mergers Section 7 of Clayton Act depends on:
Relevant product
substitutability
Geographic market
Where the merging companies compete
Probable impact on competition
Market foreclosure
Potential elimination of competition
Entrenchment of smaller firm in a market
Trends revealing high rate of concentration of leading competitors
Postmerger evidence revealing anticompetitive effects

25. Types of Mergers
VERTICAL
HORIZONTAL
CONGLOMERATE

26. Defenses to Section 7 Complaints
Merger does not have a substantial effect on ICC
Merger does not have probability of substantially lessening competition or tending to create a monopoly
One of the companies to the merger is failing
Merger is solely for investment purposes

27. Justice Dept. Merger Guidelines
Horizontal Mergers
Hertindahl-Hirschman Index (HHI)
The smaller the HHI, the less concentrated the market
Threshold = 1,800 postmerger score
Vertical Mergers
Usually not challenged

28. Hart-Scott Robinson Act of 1976
Amended Section 7 of Clayton Act
Requires premerger notification
Applies to large company mergers affecting interstate commerce
Report to FTC and Justice Dept. 30 days in advance
Remedies: injunction; cease and desist; divestiture

29. Interlocking Directorates
Section 8 Clayton Act
Prohibits being director of two or more corporations
More than 21 million or 2million in competitive sales
Interstate commerce
Competitors
Potential competitors
Exclusions: banks, trust companies, common carriers
More than 21 million or 2million in competitive sales… Is this written right?

30. Other Antitrust Statutes
Federal Trade Commission Act of 1914
Prohibits unfair methods of competition
Bank Merger Act of 1966
Requires agency approval of all bank mergers

31. Global Dimensions
Sherman Act, Sections 1 and 2, apply expressly to international commerce
Clayton Act does not
Other laws provide extraterritorial reach to U.S. antitrust laws
Export Trading Act
Antitrust Enforcement Assistance Act of 1994
FTC Guidelines

32. Limits on Application of U.S. Law Overseas
Dept. of Justice guidelines on “substantial and foreseeable effect” of foreign actions on U.S. commerce
State regulated models that encourage price-fixing and collaboration can violate U.S. law
Act of State Doctrine: U.S. courts will not judge acts of foreign governments performed within their own borders

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