Antitrust I Outline
Professor Meyers
Fall 2006
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The Antitrust laws protect competition, not competitors
I. Introduction to the Competition Model
A. Antitrust Generally
– Antitrust – the law of competition that regulates how businesses can compete.
o Not concerned with whether competition is fair because we deal in a free enterprise society and expect to have winners and losers.
o Antitrust laws want vigorous competition so consumer will get the best possible price
§ Ultimate beneficiary of Antitrust laws – Consumer
– Antitrust Exemption – it is possible to have an exemption from the antitrust laws and they will not apply to you.
o Ex. Players Associations, Owners Associations, Unions – employees collectively bargaining for what they will get paid
B. Antitrust Laws
– Federal Antitrust Statutes
o Sherman Act
§ General – Passed in 1890, it is still basically the same it was then. There was basically no regulation before the enactment of this and Teddy Roosevelt vigorously enforced it after its passage.
· Statute is very lean but there is thousands of pages of case law interpreting it.
· Violation of the Sherman Act is a felony
o Government can enforce civilly or criminally
o Private Actors can enforce civilly
§ §1 – prohibits every K, combination or conspiracy in unreasonable restraint of trade
· 2 Elements to §1 Violation:
o 1. K, Combination or Conspiracy
o 2. Acts in Unreasonable Restraint of Trade
· Does not mean any contract in restraint of trade (every contract restrains trade) but courts have interpreted it to be a contract in unreasonable restraint of trade
§ §2 – prevents monopolization, attempts to monopolize or conspiracy to monopolize
o §3 Clayton Act
§ Purpose – Restricts buyer from agreeing not to deal with the other sellers if it substantially lessens competition or tends to create a monopoly
· Only deals with goods, not services
§ Effects Clause (Substantiality Test) – § 3 is violated “where the effect of such lease, sale, or Kx may be to substantially lessen competition OR tend to create a monopoly.”
· Substantiality Elements – No violation unless it’s probable that performance of the Kx will foreclose competition in a substantial share of the line of commerce effected.
o 1. Define the Product Market (line of commerce)
o 2. Define the Geographic Market (relevant area of competition)
o 3. Whether the Kx covers a substantial share of the relevant geographic market (market power)
§ IF all 3 met, § 3 violation
· Substantiality test is a lesser hurdle b/c the only proof needed is that it “tends to harm competition” rather than “harms competition” (Sherman Act)
§ Penalties – Same as Sherman Act civilly
o §5 Federal Trade Commission Act – enforceable only by FTC
§ Courts have construed this to be subject to all the tests of §1 Sherman
– Oklahoma Antitrust Statutes
o Antitrust Constitutional Provisions:
§ Art. 2 §32 – Monopolies are contrary to the genius of a free government and shall never be allowed
§ Art. 5 §44 – Legislature shall define unlawful combination, monopoly, trust, act or agreement and enact laws to punish those engaged
§ Art. 9 §45 – No discriminating by pricing for the purpose of creating a monopoly or destroying competition
o Oklahoma Antitrust Reform Act – Mention this Statute on Final – point
§ 79 OS §203(A) – K, Combination, Conspiracy or Act in restraint of trade or commerce within OK is illegal
§ 79 OS §203(B) – Unlawful for person to monopolize, attempt to monopolize or conspire to monopolize
§ 79 OS §203(D)(1) – Definition of Monopolize
· Possession of MP in relevant market and exclusionary conduct
§ 79 OS §203(D)(2) – Definition of Monopoly Power
· Power to control price or exclude competition
§ 79 OS §203(D)(3) – Essential Facilities Doctrine
· Facility: (a) controlled by an entity with MP, (b) that a competitor would be unable to duplicate, (c) the use of which has been unreasonably denied to a competitor or customer, and (d) it would be feasible to allow competitor or customer use without causing harm or unreasonably interfering with the entity with MP.
o Restraint of Trade Statutes:
§ 15 Okla. Stat. §217 – Restraint of Trade: Every Kx by which any one is restrained from exercising a lawful profession, trade, or business of any kind, otherwise than as provided by §§ 218 and 219, is to that extent void.
· Exceptions:
o 15 Okla. Stat. §218 – Exception as to Sale of Goodwill
§ One who sells the goodwill of a business may agree w/ the buyer to refrain from carrying on a similar business w/in a specified area (i.e., town, county, etc) so long as the buyer, or anyone deriving title to the goodwill, carries on a like business. While such agreements are valid, they’re only valid w/in the county comprising the primary place of the conduct of the business and w/in any contiguous counties.
o 15 Okla. Stat. §219 – Exception as to Partners
§ Partners, when anticipating the dissolution of their partnership, may agree that none of them will carry on a similar business w/in a specified area (i.e. town, county, etc.). While such agreements are valid, they’re only valid win the county comprising the primary place of the conduct of the business of the partnership and w/in any contiguous counties.
o 15 Okla. Stat. §219A – Noncompetition Agreements
§ If you engage in a non-compete agreement, you can engage in the same business as your former employer as long as you don’t sell the same stuff or service.
– Enforcement
o Jury Trial
§ Entitled to jury trial if seeking damages
§ Not entitled to jury trial if seeking injunction
o Entities that can enforce Antitrust laws:
§ 1. Federal Government
· There are agreements among federal entities as to who will bring which kind of action:
o Department of Justice – only entity that can bring both a criminal and civil action
o Federal Trade Commission – can bring civil action but not criminal
· Civil Actions by Federal Government
o If private parties have been harmed, Federal Government can bring suit for injunction only.
o If Federal Government has been harmed, they can get damages or injunction.
· Criminal Actions by Federal Government
o Penalties:
§ Individuals – Up to 10 years in prison and fines up to $1 million.
§ Corporations – Fines up to $100 million.
§ 2. State
· Attorney General can bring an action on behalf of state:
o 1. If state is harmed, or
o 2. On behalf of citizens (parents patriai)
· States can recover damages or injunctive relief
§ 3. Private Parties
· 95% of all antitrust cases are brought by private parties
·
will be applied.
§ Courts may use the RR when current economic conditions require (Appalachian Coal)
· Ex. Depression
o Reasonableness of price fixed can never be a defense – unlawful per se (United States v. Trenton)
§ Reasonable price today is an unreasonable price tomorrow
o Summary – normally apply per se analysis to agreements that fix price – but if you can argue that agreement has purpose and effect of making market function more competitively or of creating efficiencies, effect on prices may be viewed as merely an ancillary restraint and subject to RR.
– Supply and Output Restrictions – restriction on output or supply with purpose of affecting price – PER SE
o Under the Sherman Act, a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity is illegal per se. – put this quote on exam
o When setting price is not ancillary to a main valid purpose, it is a naked restraint and unlawful per se under §1.
§ Price setting could come in the form of restriction of supply or output. (Socony-Vacuum)
§ Efforts to “stabilize” price are not a defense and are still unlawful
· Horizontal agreements must Leave Price Alone
– Agreements Limiting Price Competition – fee schedules (minimum or maximum) arrived at among competitors are typically violative of §1 under PER SE
o Ex. Minimum fee schedules for lawyers were found to be violations (Goldfarb)
o There is no exemption for professional services (Arizona v. Maricopa County)
– Data Dissemination and Information Exchange – you are more likely to be found in violation of §1 if your exchange involves current information that stabilizes price.
o Usually judged under RR unless the intent of the information exchange is solely to affect price (American Column)
o Non-legitimate business reasons for exchanging information – dividing territories, fixing prices
o Legitimate – sharing information through trade organizations
§ Trade Associations – where competitors come together to share mutual industry interests and objectives and to collect and share industry data.
· Main Question – determine if the cooperative commercial arrangement has the effect of limiting competition by facilitating price coordination (Hovencamp)
o The more recent or confidential the information, the more likely violative of §1.
o Market Structure – great weight is placed on market structures when performing a §1 analysis
§ Oligopolistic Markets with Homogenous Product – With so few competitors, excess capacity and a fungible product, you expect price to be stable because it is very important and that is the competing point (U.S. v. Container Corp.)