1. Chapter 46 Antitrust Law Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Jentz Miller Cross BUSINESS LAW Alternate Edition 11 th Ed.

2. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 2Introduction  Common law actions intended to limit restraints on trade and regulate economic competition.  Embodied almost entirely in: –The Sherman Antitrust Act of 1890. –The Clayton Act of 1914.

3. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3 § 1: The Sherman Antitrust Act § 1: The Sherman Antitrust Act  Section 1 and 2 contain the main provisions of the Sherman Act. –Section 1: Requires two or more persons, as a person cannot contract, combine, or conspire alone.Requires two or more persons, as a person cannot contract, combine, or conspire alone. Concerned with finding an agreement.Concerned with finding an agreement. –Section 2: Applies both to an individual person and to several people, because it refers to every person.Applies both to an individual person and to several people, because it refers to every person. Deals with the structure of monopolies in the marketplace.Deals with the structure of monopolies in the marketplace.

4. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4 § 2: Section 1 of the Sherman Act § 2: Section 1 of the Sherman Act  Section 1 regulates what are called “horizontal” and “vertical” restraints.  Per se violations vs. the Rule of Reason –Per se are blatant and substantially anticompetitive. –Rule of reason agreements do not unreasonably restrain trade.

5. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Horizontal Restraints  Horizontal restraints are agreements among Sellers (or Buyers) that restrain competition between rival firms competing in the same market. Seller Buyer Seller Buyer

6. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6 Price Fixing  An agreement between competing firms in the market to set an established price for the goods or services they offer.  Price fixing agreements are per se violations of the Act.

7. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7 Group Boycotts  Agreement between two or more sellers to refuse to deal with a particular person or firm.  Group boycotts are per se violations of the Act.

8. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 Horizontal Market Division  Occurs when competitors in the same market agree that each will have exclusive rights to operate in a particular geographic area.  Horizontal market divisions are per se violations of the Act.

9. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 Trade Associations  Trade Associations are industry specific organizations created to provide for the exchange of information, representation of the business interests before governmental bodies, advertising campaigns, and setting of regulatory standards to govern their industry or profession.  Rule of reason is applied to determine if a violation of the Act has occurred.

10. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 Joint Ventures  A joint venture is an undertaking by two or more individuals or firms for a specific purpose.  The rule of reason is applied to analyze the agreement if the venture has first been found not to involve price fixing or market divisions.

11. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Vertical Restraints  Vertical restraints are per se anticompetitive agreements imposed by Sellers upon Buyers (or vice versa) that may include affiliates in the entire supply chain of production. Buyer Seller Buyer

12. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 Vertical Restraints  Agreements between firms at different levels of the manufacturing and distribution process.  Vertical restraints may restrain competition among firms that occupy the same level in chain.  Vertical restraints that significantly affect competition may be per se violations.

13. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 Territorial or Customer Restrictions  Imposed by manufacturers on the sellers of the products, to insulate dealers from direct competition with each other.  Territorial and customer restrictions are judged under the rule of reason.

14. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 Resale Price Maintenance Agreements  An agreements between a manufacturer and a distributor or retailer in which the manufacturer specifies the retail price at which retailers must sell products furnished by the manufacturer or distributor.  This is a type of vertical restraint and is normally a per se violation.  CASE 46.1 Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007).

15. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15  Section 2 of the Sherman Antitrust Act deals with: –Monopolization. –Attempts to monopolize.  Predatory pricing. –Attempt by a firm to drive its competitor from the market by selling its product at prices substantially below the normal costs of production. § 3: Section 2 of the Sherman Antitrust Act

16. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16Monopolization  Monopolization in violation of the act requires two elements: –The possession of monopoly power and –The willful acquisition and maintenance of the power.

17. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 17 Monopoly Power  Exists when one firm has sufficient market power to control prices and exclude competition.  Market power is often assessed by the use of the Market-Share Test. –As a rule of thumb, if a firm has 70% or more of a relevant market, it is regarded as having monopoly power.

18. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 18 The Intent Requirement  The intent to monopolize is difficult to prove.  Intent may be inferred from evidence that the firm had monopoly power and engaged in anticompetitive behavior.

19. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 19 Attempts to Monopolize  Firm actions are scrutinized to determine whether they were intended to exclude competitors and garner monopoly power and had a “dangerous” probability of success.

20. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 20 § 4: The Clayton Act  The Clayton Act deals with: –Price Discrimination. –Exclusionary Practices. –Mergers. –Interlocking Directorates.

21. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 21  Price discrimination is the charging of different prices to competing buyers for identical goods. Goods must (1) be engaged in interstate commerce, (2) be of like grade and quality, (3) sold to two or more purchasers.  Defenses: –Cost justification. –Meeting the price of competition. –Changing market conditions. Price Discrimination

22. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 22  Exclusive Dealing Contracts. –A contract under which a seller forbids a buyer to purchase products from the seller’s competitors. –Prohibited if the effect of the contract is to “substantially lessen competition or tend to create a monopoly.” Exclusionary Practices

23. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 23  Tying Arrangements. –The conditioning of the sale of a product on the buyer’s agreement to purchase another product produced or distributed by the same seller. –CASE 46.2 Illinois Tool Works, Inc. v. Independent Ink, Inc. (2006). Exclusionary Practices

24. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 24  Horizontal Mergers occur between firms at the same level in the production and distribution chain.  Vertical Mergers occur between firms at different levels in the production and distribution chain.  Market Share and Concentration. – –CASE 46.3 Chicago Bridge & Iron Co. v. Federal Trade Commission (2008).Mergers

25. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 25  Conglomerate Mergers occur when a firm seeks to: –Extend its product into a new market by merging with a firm in that market. –Extend its product line by merging with a firm already producing that product. –Diversify by acquiring a firm that deals in unrelated products. Mergers

26. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 26 Interlocking Directorates  Occurs when an individual serves on the board of directors of two or more competing companies simultaneously.  These are prohibited if the two firms meet certain size requirements.

27. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 27  U.S. Department of Justice.  The Federal Trade Commission enforces the FTCA. FTCA provides that: –“Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce are hereby declared illegal.” § 5: Enforcement of Antitrust Laws

28. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 28 Private Actions  Private party injured under the Sherman or Clayton Act can: –Sue for damages and attorneys fees. –Plaintiff must prove: Antitrust violation either caused or was a substantial factor in plaintiff’s injury, and the unlawful actions of Defendant affected Plaintiff’s business protected by antitrust laws.Antitrust violation either caused or was a substantial factor in plaintiff’s injury, and the unlawful actions of Defendant affected Plaintiff’s business protected by antitrust laws. –Treble Damages.

29. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 29 § 6: Exemptions from Antitrust Law  Most statutory exemptions to the antitrust laws apply to the following areas: –Labor. –Agricultural associations and fisheries. –Insurance. –Foreign trade. –Professional baseball. –Cooperative research and production. –Joint efforts y businesspersons to obtain legislative or executive action. –And Others.

30. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 30Exemptions –Cooperative research and production. –Joint efforts y businesspersons to obtain legislative or executive action. –And Others.

31. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 31 § 7: U.S. Antitrust Laws in the Global Context  Extraterritorial application of U.S. laws: U.S antitrust laws may be applied to protect foreign consumers from U.S. company violations in foreign nations.  Foreign “persons” (including governments) may sue U.S. companies in domestic courts.  Issue: what is “substantial effect” on U.S. commerce?