Antitrust for All: a Primer for the Non-antitrust Practitioner
| Publication year | 2014 |
| Pages | 19 |
Articles
Antitrust for All: A Primer for the Non-Antitrust Practitioner
By Benjamin Larson.
About the Author
Benjamin J. Larson is an associate at Ireland Stapleton Pryor & Pascoe, PC, where he practices in the firm’s commercial litigation group. In a former life, he received his undergraduate degree in economics. He has long since become a lawyer, and although he loves the law, he still occasionally daydreams about having pursued a graduate degree in economics. In reality, he lives vicariously through antitrust law —blarson@irelandstapleton.com.
Antitrust laws generally guard against business behaviors that reduce competition, thereby harming consumers. This article is a primer on the central federal antitrust laws—namely, Sections 1 and 2 of the Sherman Act—with a focus on the Colorado practitioner.
In general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition, it will always be the more so. —Adam Smith[1]
The typical lawyer in Colorado does not make his or her living trying antitrust cases. Nevertheless, a basic understanding of antitrust law is a valuable tool in nearly any lawyer's practice, because the principles of fair business competition pervade so many aspects of our lives. To that end, this article explores the two primary antitrust claims asserted by private plaintiffs, and some of the special considerations that arise in asserting and defending against such claims.
Historical and Statutory Overview
The idea that competition benefits markets is an old one. Certain market protections have long existed at common law. These protections were loosely codified in the Sherman Antitrust Act of 1890[2] and subsequently expanded in the Clayton Antitrust Act of 1914.[3] Prior to the Sherman Act's enactment in 1890, the country was facing an ever-increasing gap between rich and poor, due in part to certain industries being controlled by a small number of large companies.[4] This phenomenon was exemplified by John D. Rockefeller's Standard Oil Trust, a conglomerate that by 1890 had gained a stranglehold over the country's oil industry from top to bottom.[5] The Standard Oil Trust ultimately was broken up as a result of the Supreme Court's decision in Standard Oil Co. v. United States, the first seminal case to apply the Sherman Act.[6]
Federal Antitrust Laws
Generally stated, the purpose of the federal antitrust laws is to guard against conduct that unfairly restricts competition in the marketplace and thereby harms consumers.[7] Colorado has its own Antitrust Act that is closely modeled after the Sherman and Clayton Acts, but it has not been heavily litigated over the past twenty years.[8] Consequently, this article focuses on federal antitrust laws, and specifically, on the two primary federal causes of action asserted by private plaintiffs: claims under Section 1 and Section 2 of the Sherman Act.[9] These causes of action guard against two types of business practices. Section 1 of the Sherman Act prohibits concerted activity—for example, agreements—to restrain trade. [10] Section 2 of the Sherman Act prohibits monopolization of markets, whether by concerted or unilateral activity.[11]
These two statutory sections, which have carried much weight for more than a century, are highlighted by their breadth and brevity. The substantive provisions of Sections 1 and 2 of the Sherman Act amount to one sentence each and could be literally construed to prohibit a wide variety of everyday business activities. Consequently, the courts, led by the U.S. Supreme Court, have been left to shape antitrust law with the changing times, while keeping in mind the guiding principle, so strikingly similar to Adam Smith's observations centuries before, that: "[T]he unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress."[12]
Sherman Act, Section 1 —Conspiracies to Unreasonably Restrain Trade
Pursuant to Section 1 of the Sherman Act,
[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.[13]
Thus, to establish a Section 1 violation, a plaintiff must show (1) concerted action by contract, combination, or conspiracy; and (2) an unreasonable restraint of trade.[14]
Conspiracy Requirement—It Takes Two to Tango
One person acting alone cannot violate Section 1 of the Sherman Act.[15] Instead, unilateral actions are subject to Section 2 of the Sherman Act and its tougher "monopolization" requirement. To satisfy the conspiracy requirement, a plaintiff must prove a plurality of actors—that is, more than one—and concerted action among them.[16] Although the plurality requirement may appear simple at first blush, a number of wrinkles arise when determining whether business entities should be treated as a single entity for purposes of a Section 1 analysis.
For example, two legally distinct entities can be treated as one in some circumstances, and a single distinct entity comprised of independent interests can be treated as a plurality in others.[17] The single entity inquiry hinges on whether there is a
contract, combination, ... or conspiracy amongst separate economic actors pursuing separate economic interests, such that the agreement deprives the marketplace of independent centers of decisionmaking and therefore of diversity of entrepreneurial interests and thus of actual or potential competition.[18]
The guidance from the Supreme Court on this issue is less than clear; however, a few concrete rules can be stated. First, a business entity and its officers and employees are typically treated as one person for conspiracy purposes.[19] Additionally, a parent company and its wholly owned subsidiaries cannot conspire with one another.[20] However, a business venture that is technically a single entity, but in reality "is controlled by a group of competitors," will not be treated as a single entity.[21]
Once the plaintiff establishes a plurality of players, it must establish concerted action among them. No formal agreement is required. Rather, the evidence need show only "a conscious commitment to a common scheme designed to achieve an unlawful objective," and exclude the possibility that the defendants were pursuing independent interests.[22] Smoking gun evidence of concerted activity is rare; consequently, this element typically is satisfied by circumstantial evidence. However, a plaintiff relying on only circumstantial evidence also must show that the conspiracy alleged would be economically rational—that is, that defendants would have a "plausible motive" to benefit their individual economic interests.[23]
Restraints of Trade
A restraint of trade is simply a limitation on competition in a market. Section 1 could be read to prohibit all restraints of trade; however, for a long time, the Supreme Court has limited Section 1 to prohibiting only unreasonable restraints of trade.[24] Certain categories of restraints are deemed unreasonable simply because of the nature of the restraint, without regard to the defendants' intent or the restraint's actual impact on competition.[25] These restraints are called "per se offenses." If the defendants' conduct falls within the category of a per se offense, the plaintiff need only show the existence of the conduct to establish a Section 1 violation.
Restraints that do not fall within the relatively narrow confines of the per se offenses are judged under the "rule of reason" standard. Under this standard, the fact finder must assess whether the pro-competitive effects of the conduct in question outweigh its anticompetitive effects.[26] In the Tenth Circuit, this is done using a burden-shifting approach whereby the plaintiff first must come forward with evidence that the agreement has a substantially adverse effect on competition.[27] If the plaintiff does so, the defendant then must produce evidence of the pro-competitive effects of the conduct in question.[28] Then, the burden shifts back to the plaintiff to show that the pro-competitive effects could be achieved through less restrictive means.[29]
One of the most important factors in this analysis—and a threshold issue in the Tenth Circuit—is whether the defendant possesses "market power" in the "relevant market" where the alleged conduct occurred.[30] Market power and relevant market are two important economic concepts that run throughout almost all of antitrust law. To understand whether a defendant possesses market power, a plaintiff first must establish the relevant market in which to make that assessment.[31]
The relevant market is broken down into product and geographic markets.[32] As stated in Green Country Food Market, Inc. v. Bottling Group, LLC, "[a] relevant product market consists of 'products that have reasonable interchangeability for the purposes for which they are produced—price, use and qualities considered."'[33] For example, if a defendant is a lemonade producer, the product market likely would not be limited to lemonade; if the lemonade producer tried to squeeze consumers by increasing prices, consumers likely would quench their thirst by turning to any number of substitutes, such as iced tea, soft drinks, or other fruit drinks. However, if the defendant is a dairy milk producer, the product market would be more narrowly construed, because consumers are less likely to turn to an alternative product.
The geographic market, on the other hand, consists of the geographic area in which a consumer can realistically find an alternative supply in the event a producer increases prices. For...
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