Antitrust violations.

Author:Nichols, Bob
Position:Twenty-Sixth Annual Survey of White Collar Crime
  1. INTRODUCTION II. ELEMENTS OF THE OFFENSE A. Conspiracy B. Restraint of Trade C. Interstate Nexus D. Intent III. DEFENSES A. Withdrawal from Conspiracy B. Statute of Limitations C. Double Jeopardy D. Single Entity E. Respondeat Superior F. Meeting Competition G. State Action Immunity H. Petitioning the Government I. Regulated Industry J. Foreign Commerce--Effects, Comity, and Foreign Sovereign Compulsion IV. ENFORCEMENT A. Federal Enforcement B. State Enforcement C. International Enforcement V. PENALTIES I. INTRODUCTION

    The Sherman Act (the "Act") (1) protects free-market competition (2) by proscribing "[e]very contract, combination ... or conspiracy" in restraint of interstate or foreign commerce. (3) Despite the expansive language of the Act, courts have consistently held that Congress intended section 1 to prohibit only "unreasonable" restraints of trade. (4)

    The Supreme Court has compared the "generality and adaptability" of the Act to that of a constitutional provision. (5) Congress delegated to the courts the task of distinguishing between criminal and civil violations of the Act, (6) and extensive federal common law governs both classes of violations. (7)

    This Article focuses on criminal antitrust law. (8) Section II outlines the four elements of a criminal antitrust violation under section 1 of the Act. Section III discusses the defenses to an antitrust claim. Section IV distinguishes between federal, state, and international enforcement. Finally, Section V explains the penalties for criminal violations.


    A civil plaintiff must establish three elements to prove a violation of section 1: (i) an agreement to concerted action, such as a combination or conspiracy formed by two or more entities; (9) (ii) the agreement unreasonably restrained trade or commerce; (10) and (iii) the restrained trade or commerce is interstate or international in nature. (11) In a criminal antitrust prosecution, the government must also prove the additional element that the defendant intended to restrain commerce. (12) Parts A through D of this Section discuss each of these elements in turn.

    1. Conspiracy

      Under section 1 of the Act, a conspiracy "must comprise an agreement, understanding or meeting of the minds between at least two competitors or potential competitors, for the purpose or with the effect of unreasonably restraining trade." (13) The illegal agreement itself constitutes the object of the offense; accordingly, neither completion of the conspiracy nor any overt acts furthering the conspiracy must be pleaded or proven. (14) The venture's contractual form and ultimate success are also immaterial, so long as the parties have formed an illegal agreement. (15)

    2. Restraint of Trade

      The agreement or conspiracy must "unreasonably" restrain trade. (16) The Supreme Court has referred to the phrase "restraint of trade" as "a particular economic consequence, which may be produced by quite different sorts of agreements in varying times and circumstances." (17) Typically, a restraint of trade involves collusive activity that restricts output and leads to supra-competitive prices, exclusionary conduct such as refusal to deal, or other interference with the free play of market forces. (18)

      To determine whether conduct constitutes an unreasonable restraint of trade, courts examine the effect of that conduct on competition in relevant markets. (19) The courts use different analytical approaches with varying degrees of scrutiny, depending largely on whether there may be procompetitive justifications for the conduct. No "categorical line" dictates which method of analysis should be used. (20) Rather, the methods are "best viewed as a continuum upon which the amount of evidence required to demonstrate that a restraint is unreasonable" depends on the likelihood that the given restraint harms competition and the mitigating likelihood that it increases a firm's efficiency. (21)

      The first analytical approach, the "rule of reason," (22) applies to conduct which cannot be assumed to be without procompetitive justifications. (23) However, the line between activities falling under the rule of reason approach and those that may require less rigorous analysis is often unclear. (24) Under the rule of reason, courts look at the full context of an agreement to determine whether it poses an "unreasonable" restraint on trade. (25) If the procompetitive benefits of the agreement outweigh the harm to competition, the restraint is not unreasonable. (26) The rule of reason generally applies to activities such as information exchanges, (27) blanket licenses, (28) vertical maximum price fixing, (29) and vertical minimum price fixing. (30)

      When a restraint is sufficiently and plainly anticompetitive, courts do not engage in the rule of reason analysis but instead find it per se unreasonable. (31) Under the per se rule, courts presume the illegality of activities that inherently restrain trade and lack any redeeming purpose. (32) Per se treatment applies "once experience with a particular kind of restraint enables the Court to predict with confidence" that a more comprehensive analysis will condemn it as illegal. (33) Under the per se rule, the government need only prove the existence of an unlawful agreement and need not prove anticompetitive effects. (34) The purpose of the per se rule is to avoid time-consuming and costly investigations into the economics of agreements that are almost always anticompetitive and almost never have countervailing benefits. (35) Examples of agreements which implicate the per se rule include horizontal price-fixing arrangements, (36) market allocation, (37) group boycotts, (38) and some tying arrangements. (39) "Virtually all" criminal prosecutions brought under the Act involve offenses governed by the per se rule, although per se violations represent only a small portion of all antitrust cases. (40) Over time and with changes in economic thought, many agreements that were once per se illegal are now evaluated under more lenient standards such as the rule of reason. (41)

      An intermediate approach, the "quick look" or abbreviated rule of reason, retains some of the efficiency of the per se approach while allowing the parties some latitude to rebut the presumption. (42) Courts apply the "quick look" analysis for agreements restricting output or price competition which might have procompetitive justifications. (43) Once the court finds a restraint that merits quick-look scrutiny, the burden is shifted to the defendant to justify the restraint. (44) If the defendant successfully rebuts the presumption of anti-competitive effects, the court then applies a full rule of reason analysis, which balances the costs of the restraint of trade against its benefits. (45)

      The Court has noted that there is no bright line between restraints which "intuitively [have] obvious anticompetitive effects," which are per se illegal, "and those that call for more detailed treatment." (46) Furthermore, the quick look and per se analyses are exceptions to the general rule of reason approach. (47) The Court in California Dental Ass'n v. FTC explained that quick look, like per se analysis, relies on the court's experience with the market and the actions being scrutinized to permit the court to make confident conclusions concerning whether a particular restraint is "nakedly anti-competitive." (48) Predictably, California Dental Ass'n has narrowed the application of the quick look approach where there is evidence of procompetitive effects. (49)

    3. Interstate Nexus

      Congressional authority to regulate anticompetitive restraints on trade derives from the Commerce Clause. (50) Accordingly the government must prove that a defendant's illegal activities had a substantial effect on interstate commerce to prove a violation of the Act. (51) Courts generally take a permissive approach and hold that broad Congressional authority under the Commerce Clause extends to antitrust law. (52)

      The required nexus between the agreement restraining trade and interstate commerce may be established under the "in commerce" test or the broader "effect on interstate commerce" test. (53)

      The narrow "in commerce" test, which is rarely used, requires that the challenged activity directly interfere with the flow of goods in interstate commerce. (54) To meet this requirement, an activity must (i) involve a "substantial volume of interstate activity" and (ii) be "an essential part of the transaction.., inseparable from its interstate aspects." (55)

      The second standard, "effect on commerce," requires proof only that the challenged activity as a matter of "practical economics... [has more than an] 'insubstantial effect' on interstate commerce." (56) Therefore, seemingly local trade practices have an "effect on commerce" unless they have no significant impact on the flow of interstate commerce. (57)

      The "effect on commerce" test was articulated by the Supreme Court in McLain v. Real Estate Board of New Orleans. (58) Some commentators have argued that the "effect on commerce" test is confusing, (59) as "[divergent] language in McLain concerning the precise parameters" (60) of the new test has created uncertainty (61) and led to a circuit split as lower courts struggled to define the application of the test. (62) Some circuits hold that the nature of the defendant's general business activities must affect interstate commerce, (63) while others hold that the restraint of trade itself must affect interstate commerce. (64)

      In Summit Health, Ltd. v. Pinhas, (65) the Supreme Court discussed the interstate commerce requirement but did not seek to resolve the split between the circuits. (66) The Court said that a Los Angeles hospital's general connection to interstate commerce and the effect of the alleged conspiracy on interstate commerce were possible grounds for establishing an interstate nexus. (67) Ultimately, "the required nexus between the challenged activity...

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