1. PowerPoint Slides to Accompany ESSENTIALS OF BUSINESS AND ONLINE COMMERCE LAW 1st Edition by 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. Rules to Determine Lawfulness of a Restraint
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

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
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. Vertical Restraints of Trade
Occurs when two or more parties on different levels of distribution enter into a contract, combination, or conspiracy to restrain 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. Types of Mergers (1 of 2) 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

25. Market Extension Mergers
Types of Mergers (2 of 2)
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

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