ANTI-TRUST BASIC CONCEPTS
Jurisdiction | United States |
(May 2008)
ANTI-TRUST BASIC CONCEPTS
Gibson, Dunn & Crutcher LLP
Denver, Colorado
Taggart Hansen
Gibson, Dunn & Crutcher LLP
Denver, Colorado
M. Sean Royall
Gibson, Dunn & Crutcher LLP
Dallas, Texas
I. INTRODUCTION
As recognized by the Supreme Court, the purpose of antitrust laws, like the Sherman Act, "is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself. It does so not out of solicitude for private concerns but out of concern for the public interest."1 Thus, fierce competition; efficient, innovative, and low-cost competitors; multiple product options and consumer choices; efficiency-enhancing collaborations and mergers; and expanded output with corresponding lower prices, are all treated favorably by the antitrust laws. In contrast, coordination between competitors (without justification); market dominance (achieved or maintained through "exclusionary" conduct); significant market consolidation (without corresponding efficiency); and restricted output with corresponding higher prices (due to artificial restraints, not natural market forces), are viewed as harmful to consumers because they
[Page 16A-2]
stifle competition. To address this latter type of conduct, Congress has passed several laws -- the Sherman Act, the Clayton Act, the Federal Trade Commission Act, and the Robinson-Patman Act -- which are meant to police the market place by providing the government and private attorneys general with authority to enforce the laws when there has been a "failure of the market." What follows is a basic primer on these antitrust laws.
II. FEDERAL ANTITRUST LAWS
A. The Sherman Act
Section 1 of the Sherman Act declares illegal "[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[.]"2 This provision is directed at concerted action between two or more separate entities, and does not reach unilateral action by a single entity.3 Section 2 of the Sherman Act, on the other hand, prohibits monopolization of, attempted monopolization of, and conspiracies to monopolize "any part of the trade or commerce among the several States, or with foreign nations[.]"4 Unlike § 1 of the Sherman Act, § 2 applies to single entity conduct and multiple entity conduct. Notably, the Supreme Court long ago enunciated its view that the Sherman Act was "founded upon broad conceptions of public policy" and the Act's prohibitions "were enacted to prevent not the mere injury to an individual which would arise from the doing of the prohibited acts, but the harm to the general public which would be occasioned by the evils which it was contemplated would be prevented[.]"5 This public policy rationale remains true today.
B. The Clayton Act
Section 7 of the Clayton Act was enacted as a proscription to mergers whose effect "may be substantially to lessen competition" or to "tend to create a monopoly."6 The Clayton Act is a "prophylactic measure" primarily intended to "arrest apprehended consequences of
[Page 16A-3]
intercorporate relationships before those relationships [can] work their evil."7 The "core question" when evaluating a claim under § 7 is whether a merger may substantially lessen competition, the answer to which necessarily requires a prediction of a merger's impact on present and future competition.8 Importantly, Congress enacted § 7 of the Clayton Act to reach conduct that the Sherman Act did not ordinarily reach.9
C. The Federal Trade Commission Act
The Federal Trace Commission Act (FTC Act), § 5, prohibits "unfair" or "deceptive" acts and practices; or, as stated by the Supreme Court, § 5 is intended "to combat in their incipiency trade practices that exhibit a strong potential for stifling competition."10 In this regard, the FTC Act condemns conduct which, if left unfettered, would violate the Sherman Act and/or the Clayton Act.11
D. The Robinson-Patman Price Discrimination Act
The Robinson-Patman Price Discrimination Act prohibits price discrimination involving commodities,12 and is aimed at price discrimination, not conspiracy.13 The Supreme Court has
[Page 16A-4]
"discern[ed] in § 2 [of Clayton Act as amended by Robinson-Patman Act (15 U.S.C. § 13)] neither a purpose to insulate retailers from lawful and normal competitive pressures generated by other retailers, nor an intent to authorize suppliers, in response to such pressures created solely at the retail level, to protect, discriminatorily, sales to one customer at the expense of other customers."14 In other words, the Robinson-Patman Act was meant to ensure, to the extent reasonably possible, "that businessmen at the same functional level would start on equal competitive footing so far as price is concerned."15
E. Comparable State And Foreign Laws
In addition to the foregoing federal antitrust laws, companies must also be cognizant of the fact that conduct that violates the federal antitrust laws may also violate parallel or similar state and/or foreign antitrust laws. For example, many states have implemented antitrust and unfair competition laws that parallel, in whole or in part, the Sherman Act and Federal Trade Commission Act, and courts generally construe such parallel state laws in a manner consistent with federal court precedent and federal agency interpretation.16 Yet, there are also variations
[Page 16A-5]
and limitation to some of these state laws; for example, some state antitrust laws only pertain to concerted action17 while others reach only conduct that is wholly intrastate in nature.18
With respect to foreign countries, not only can the U.S. antitrust laws apply to anticompetitive conduct that occurs in a foreign country if it violates the U.S. antitrust laws,19
[Page 16A-6]
the anticompetitive conduct may also violate the competition laws of the foreign country. For this reason, the U.S. has entered into cooperation agreements with several foreign countries whereby the U.S. and the foreign country agree to provide mutual legal assistance to promote antitrust enforcement. The U.S. has such bilateral cooperation agreements with Australia, Brazil, Canada, the EU, Germany, Israel, Japan, and Mexico,20 and has a formal International Antitrust Enforcement Assistance Act agreement with Australia.21 While these cooperation agreements differ in the details, they generally provide for communication and cooperation in the following areas: (1) notification of an enforcement investigation or proceeding that may affect the other's important interests; (2) sharing of important information as permissible by domestic law; (3) coordination of investigations when both countries are investigating the same firm, transaction, or conduct; and (4) consultation regarding any issues that arise from an investigation or enforcement proceedings.22
III. ENFORCEMENT OF AND PENALTIES UNDER FEDERAL ANTITRUST LAWS
Federal antitrust laws are enforceable by the Department of Justice,23 the Federal Trade Commission,24 state Attorneys General,25 and private Attorneys General.26 Additionally,
[Page 16A-7]
companies in the gas, fuel, and petroleum industries are subject to the jurisdiction of the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC)--among other agencies--each of which can conduct investigations of and address problems associated with anticompetitive conduct and market power.
Both the DOJ and the FTC are empowered to conduct civil investigations into alleged anticompetitive conduct, whereas the DOJ has exclusive authority to conduct investigations into possible criminal activity. Given the potential for any investigation to result in a civil suit, or even worse, a criminal indictment, the utmost concern and the highest priority must be given such an investigation.
The reason for such concern is obvious; a violation of the federal antitrust laws can lead to serious penalties. For criminal violations, a corporation that violates § 1 or § 2 of the Sherman Act and is convicted of a felony can be punished by a fine not exceeding $100,000,000 per violation.27 Alternatively, a corporation can be fined at double the monetary gain or twice the loss that resulted from the antitrust violation, and such fines can ultimately be well in excess of $100,000,000.28 Any other person who is convicted of a felony under the Sherman Act can be
[Page 16A-8]
fined up to a maximum of $1,000,000 per violation, imprisoned for up to 10 years, or both,29 and such threat of criminal sanctions should not be taken lightly. Whereas it used to be the case that individuals found guilty of a criminal antitrust offense were given slaps on the wrist--community service or probation--in the post-Enron world, convicted individuals are almost always sentenced to prison time. Notably, this shift toward harsher sanctions has coincided with the more aggressive efforts by the DOJ to investigate criminal violations of the antitrust laws, including through the use of hidden cameras, wiretaps, recorders, informants, and undercover agents.
Don't be fooled, however; civil penalties can be equally devastating. Any person whose business or property has been injured by reason of an antitrust violation may recover treble damages, the cost of suit, and reasonable attorney's fees.30 As well, private Attorneys General can seek injunctive relief and, if substantially successful, are entitled to an award of costs and reasonable attorney's fees.31
Of course, there are also practical penalties, such as negative publicity and adverse community relations, that come with any adjudication of a violation of the antitrust...
To continue reading
Request your trial