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Antitrust Law
University of Baltimore School of Law
Lande, Robert H.

Lande – Antitrust – Spring 2012 Outline

I. Introduction

A. goals/values of antitrust

1. major goal: to prohibit transactions that will make things worse for consumers (not so interventionist to be proactively trying to create a market that is best for consumers)

a) note: AT isn’t about protecting competitors from competition

2. desire to have a better distribution of wealth – vis-à-vis anti-monopolistic aspects?

3. efficient use of resources – don’t want to allow companies to gain while shrinking the size of the pie (i.e., not gaining by good business practices, but by cheating…)

B. three major historical turning points in US antitrust

1. Industrial Revolution – brought about the first antitrust laws

a) led to better communication, transport of goods, etc. – regional businesses suddenly found themselves in competition with distant businesses

b) competitors wanted to quell competition, so they came together into cartels – creation of the trust form, which arose in all major industries

c) huge aggregations of wealth/power within the trusts

d) concerns re aggregations of power – exploitation of the ordinary person economically, politically, etc.

2. Hitler/WWII – shock of observing how fascist govts used big enterprise to carry out their designs; big enterprise came to work lockstep with Hitler

a) hugely dangerous politically – high concentration of economic power could play into the hands of a despot

Ÿ this led to strengthening of merger laws (1950)

3. globalization – impact starting around 1980

a) barriers to entry had become much lower as a result of trade agreements that lowered tariffs, etc., and now US companies besieged by robust competition from abroad

b) led to rethinking of laws in general – many groups began to argue that US law was too handicapping of US business

Ÿ great drive to cut back law, let business do what it had to do to be competitive in the global market

c) loosening took place not in the wording of statutes (which were very broad), but also in those enforcing the laws (judges, commissioners, etc.)

d) US AT law is now much more relaxed than it used to be

Ÿ with the exception being hard-core cartels

II. Major Statutes and Laws

A. main federal AT laws

1. Sherman Act (1890)

a) §1 prohibits agreements/conspiracies in restraint of trade

b) §2 prohibits monopolization, attempts to monopolize, and conspiracies to monopolize

2. Clayton Act (1914)

a) §3 – prohibits potentially anticompetitive acquisitions, exclusive dealings, tie-ins, and interlocking directorates

b) §4 – establishes standing under the Clayton Act PLUS threefold damages

c) §7 – prohibits anticompetitive mergers

Ÿ note: doesn’t apply to persons purchasing such stock solely for investment, and doesn’t prevent a corp from forming a subsidiary

3. Federal Trade Commission Act (1914)

a) §5 – prohibits unfair methods of competition and unfair/deceptive acts/practices

b) FTC – admin agency, can’t sue criminally, but can sue civilly

Ÿ when a case is brought under FTC Act, only injunctions are awarded, no fines

Ÿ FTC Bureau of Competition recommends which cases to bring; case is heard before an ALJ; ruling may be appealed to the FTC, then the fed app court

4. Robinson-Patman Act (1936)

a) prohibits price discrimination in the sale of goods when it harms competition

b) exceptions are made where the discriminatory low price is cost-justified or necessary to meet competition, and it doesn’t hurt competition

c) note: price discrimination can implicate Sherman §2, esp. if there is predatory pricing

5. Celler-Kefauver Amendment (1950) – amended §7 of Clayton Act

a) prohibits potentially anticompetitive mergers and acquisitions

6. Hart-Scott-Rodino Act (1976)

a) requires pre-merger notification (to both DoJ and FTC) and waiting period

B. state laws

1. almost all states have versions of Sherman Act, merger laws – about 90% of these are interpreted as the fed laws are interpreted

2. note: we don’t have a strong law of preemption in antitrust – states can apply their own laws even in areas that have a lot of spillover into interstate commerce (even where the center of gravity of the transactions is interstate commerce)

C. regulatory laws that spillover into antitrust

1. most regulated industries allow AT laws to operate even when their regulations are operating

a) even when regulatory regime is paramount, there’s usually a process where they’ll hear from AT enforcers re certain mergers, etc.

D. interplay b/t intellectual property law and antitrust law

1. e.g., Microsoft

2. interesting emerging issues of which area of law is paramount in such conflicts

III. Enforcement of Antitrust Law

A. in federal govt, two major AT enforcers

1. DoJ Antitrust Division (part of the executive branch)

a) only the DoJ AD can bring a criminal antitrust action

b) note: very high fines and jail time for criminal violations of Sherman Act

Ÿ also note: Σ doesn’t say what’s criminal or civil; has just become practice that DoJ will only prosecute as criminal matters cartel activity that is “so evil”

2. Federal Trade Commission (admin agency, not part of the executive)

a) enforces §5 of FTC Act; interpreted in line with what Sherman Act prohibits

b) note: §5 can be enforced against all of the same conduct of §§1 or 2 of Sherman Act – question is whether it can be enforced against more conduct…

3. overlapping jurisdiction b/t these two fed enforcers

a) explicitly overlapping jurisdiction in §7 of Clayton Act

b) can both enforce R-P Act (though they don’t like to enforce this, given philosophy that price discrim is just part of competition)

c) under HSR, jurisdiction over merger practice is given to both enforcers

Ÿ this is the only area where there’s contentious overlap b/t the enforcers – parties have to file with both enforcers; FTC and DoJ are supposed to confer and then decide which will enforce; 1% of the time, they squabble over it

B. private party enforcement

1. parties can get injunctions, and treble damages

a) judgment for govt is prima facie evidence of violation in a private suit against same Δ

2. standing to sue has been cut back quite a lot by the cts – must show that they are in the line of antitrust injury (injured by that which made the conduct illegal under the AT law)

a) direct purchaser suing for price fixing is exactly in the line of standing, but there are many cases where it’s not clear that π is suing for AT injury

Ÿ Note: indirect purchasers cannot sue – only direct purchasers can sue for damages (Illinois Brick rule) – exception: narrow cases where indirect purchaser is party to an ag that doesn’t present the complex problems of tracing, may be allowed to prove passed-on overcharges

b) five material factors to consider in the standing analysis

Ÿ harm was direct rather than remote

Ÿ harm was an AT injury (or inextricably intertwined with it)

Ÿ intent to harm π or those of π’s class

Ÿ prospect that standing will lead to duplicative recovery or difficult questions of apportionment of damages

Ÿ prospect that standing will leave significant violations undetected/unremedied

C. state enforcement, via the state Attorneys General

1. can bring action on behalf of residents of their state for violations of fed AT law; can also, of course, bring actions to enforce state AT law

2. relief for harm to state’s general economy – can’t sue for damages, but can sue for injunctions

IV. Evolution of the Law of Antitrust

A. Trans-Missouri (US 1897) (p.12) – first case to construe §1 Sherman

1. question of what “in restraint of trade” means

a) Δ args: only Ks that imposed unreasonable restraints of trade are prohibited by §1; justification of ruinous competition; claim that prices charged were reasonable

2. holding: ALL contracts in naked restraint of trade are prohibited

a) note: ancillary restraints are permissible; but these Ks were naked restraints

b) reasonableness isn’t an element of the analysis, b/c it’s too difficult to define – emergence of the per se rule

c) rejected the “ruinous competition” defense – free trader doctrine

3. White dissent: §1 doesn’t call for a blanket prohibition; first articulation of the Rule of Reason – concern that freedom to contract and freedom of trade may be compromised by not considering the issue of reasonableness

B. Addyston Pipe (6th Cir 1898) (p.18) – Taft; naked vs. ancillary restraints

1. naked restraints (only purpose is to exclude competitors) are illegal per se; but ancillary restraints may be legal (provisions that the K may be enjoyed)

2. examples of permissible ancillary restraints

a) by the seller of property/business, not to compete w/buyer in a way that reduces its value

b) by a retiring partner not to compete w/the firm

c) by a partnership binding a partner not to interfere w/the business of the firm

d) by the buyer of property not to use it in competition w/business retained by the seller

e) by an assistant, servant, or agent not to compete w/a former employer

3. public policy considerations – these covenants must be reasonably necessary to

a) the enjoyment by the buyer; or

b) to the legitimate end of the existing partnership; or

c) to the prevention of injury to the seller from use by the buyer of the thing that was sold; or

d) to protect from danger of loss to the employer’s business due to an employee’s use of confidential info

4. note: monopolization, regardless of duration or intent, is discouraged in the public policy embodied in the common law

C. Northern Securities (US 1904) (p.29) – Harlan; per se rule

1. reflects the moralistic approach of the Roosevelt administration and concern for competitors

2. holding: articulates the “tenets” of early Sherman Act cases

a) every combinatio

ated

b) the rectangle is a surplus – (transfer of wealth from consumer to monopoly power) money going from consumers to monopolist’s pocket…

Ÿ minimalist view is just the triangle, trying to prevent the pie from shrinking

Ÿ US AT is concerned about consumer welfare, though, so rectangle is impt

c) note: if the trans does create market power, it usually hurts both consumer welfare as well as general public welfare, so this debate is something of a nonstarter

I. Overview: General Analysis for Cartels

A. cartels = per se illegal, even though not always price-raising and output-limiting

1. cartels usually exist where competitor conduct is price-fixing (US per se rule); market division (EU); allocation of quotas; allocation of customers; standard-setting conspiracies; naked boycotts; vertical minimum resale price maintenance agreements

B. naked vs. ancillary restraints

1. naked restraints – object is to restrain trade among competitors

a) may have secondary purposes (e.g., a public interest such as reduction of rate variability) – often used as a shield for naked restraints

2. ancillary restraints – subject to Rule of Reason; byproducts of legit relationships

C. how to identify a cartel in the absence of a concrete agreement

1. what is a cartel-like arrangement?

a) why did the firm engage in apparent cartel or price-raising behavior?

Ÿ make a better product? joint venture? block competitors? cartelize?

b) it is easier for cartels to form where there are fewer firms, industry standards (fewer additional terms for potential cartelists to agree upon), and barriers to entry

2. conditions necessary for cartelization

a) must include all significant producers or buyers

b) barriers must exist to keep non-members out of market or ensure that they can’t expand

c) must have means for administering the cartel

Ÿ fixing the “right” price – determine profit-maximizing price for cartel

(a) are the members are this price? have they excluded low-cost firms?

Ÿ publication of the fixed profit-maximizing price to the members

Ÿ mechanism to detect and punish cheaters

3. market factors in the cartel definition – things to consider in identifying cartel-like behavior

a) availability of key info re market conditions

b) individual competitors

c) firm and product heterogeneity

d) pricing or marketing practices typically employed by firm in the market

e) characteristics of buyers and sellers

f) characteristics of typical transactions

g) previous collusion in another geographic market

h) note: common standards may be desirable for markets and for the public good

Ÿ when is standard-setting a conspiracy against the public?

Ÿ when is it a good business effort to improve efficiency in the market?

Ÿ when is it a business effort to improve efficiency, but with anticomp effect?

Ÿ when is it a business effort for the public in, but with uncertain comp effect?

D. characterization cases – whether the agreement is price-fixing or something else requires further study under Rule of Reason; facts must be sufficient to garner per se rule

1. conduct isn’t prohibited unless it is output-limiting and price-raising

2. only pro-competitive effects can offset anticompetitive acts

E. Rule of Reason – structured inquiry

1. analyze purpose, market power, and effect on output and price

a) must determine whether the restraints are reasonable in light of their actual effects on the market and any pro-competitive justifications

b) π must show actual adverse effect on competition in relevant market

c) Δ can provide pro-competitive effects/justifications

d) π can rebut by showing that the same pro-competitive effects can be achieved by less restrictive means

2. quick v. longer looks – depends on how easy it is to characterize the observed behavior (i.e., strongly anticompetitive conduct or weak justifications)