Antitrust violations.

• Author: Wineholt, Wendy
• Position: Thirtieth 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 1. Section 1 Enforcement 2. Section 2 Enforcement B. State Enforcement C. International Enforcement V. PENALTIES I. INTRODUCTION

   The Sherman Act (the "Act") (1) protects free-market competition (2) by prohibiting "[e]very contract, combination ... or conspiracy" in restraint of trade. (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 interprets both classes of violations. Courts consistently refer to the breadth of the Act and note that Congress expected courts to give shape to [section] 1's broad language by creating a common law of antitrust. (7) The Act includes a number of common law terms to assist the courts in determining whether it has been violated. (8) Some commentators have questioned the use of "unelaborated common law words" in the Act. The debate centers on whether Congress intended to define special classes of prohibited conduct or intended courts to interpret the statute using "certain customary techniques of judicial reasoning, [for example, to] consider the reasoning and results of other common law courts, and develop, refine, and innovate in the dynamic common law tradition." (9) Case-by-case adjudication facilitates the common law approach to antitrust. Just as common law evolves over time, the Act evolves to meet current economic conditions. (10)

   This Article focuses on criminal antitrust law. (11) Section II outlines the four elements of a criminal antitrust violation under [section] 1 of the Act. Section III enumerates several defenses to antitrust claims. Section IV discusses federal, state, and international enforcement. Finally, Section V explains the penalties for criminal violations.

2. ELEMENTS OF THE OFFENSE

   The prosecution, or plaintiff in a civil case, 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; (12) (ii) the agreement unreasonably restrained trade or commerce; (13) and (iii) the restrained trade or commerce is interstate or international in nature. (14) In a criminal antitrust prosecution, the government must also prove that the defendant intended to restrain commerce. (15) Parts A through D of this Section discuss each of these elements.

   1. Conspiracy

      Under [section] 1 of the Act, a conspiracy exists when two or more competitors or potential competitors come to an agreement, understanding, or meeting of the minds. (16) The illegal agreement itself constitutes the object of the offense; accordingly, neither ultimate success nor overt acts furthering the conspiracy must be pleaded or proven. (17) The venture's contractual form is also immaterial so long as the parties formed an illegal agreement. At the pleading stage, a complaint must contain enough factual matter to suggest an illegal agreement. (18) An allegation of parallel conduct and a bare assertion of conspiracy is not enough for a plaintiff to state a valid claim under [section] 1; the parallel conduct "must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action." (19) A conspiracy may not be found between a parent and its wholly-owned subsidiaries; they are viewed as a single enterprise under [section] 1. (20)

   2. Restraint of Trade

      The agreement or conspiracy must "unreasonably" restrain trade. (21) The Supreme Court has referred to restraint of trade as "a particular economic consequence, which may be produced by quite different sorts of agreements in varying times and circumstances." (22) Typically, a restraint of trade involves colluding to restrict output and attain supra-competitive prices, exclusionary conduct such as refusal to deal, or other interference with the free play of market forces. (23)

      To determine whether conduct unreasonably restrains trade, courts examine the effect of that conduct on competition in relevant markets. (24) Courts employ three analytical approaches with varying degrees of scrutiny, depending largely on the court's familiarity with particular restraints and their implications on market competition. No "categorical line" dictates which method of analysis should be used. (25) Rather, the methods are best viewed as a continuum, requiring a certain amount of evidence to demonstrate that a restraint is unreasonable, which depends on the likelihood that the given restraint harms competition and its countervailing precompetitive effects.

      The first analytical approach, the "rule of reason," (26) applies to conduct with possible procompetitive justifications. (27) The line between activities falling under the rule of reason approach and those that may require less rigorous analysis is often unclear. (28) Under the rule of reason, courts look at the full context of an agreement to determine whether it poses an "unreasonable" restraint on trade. In Chicago Board of Trade v. United States, the Court provided the classic definition of the rule of reason standard:

      [T]he true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. (29) If the procompetitive benefits of the agreement outweigh the harm to competition, the restraint is not unreasonable. (30) The rule of reason applies generally to activities with potential procompetitive effects; for example, information exchanges, blanket licenses, (31) vertical maximum price fixing, (32) and vertical minimum price fixing. (33) The Supreme Court distinguishes the exchange of price information from per se illegal conduct because it is falls within a "gray zone" of acceptable and economically justifiable business conduct. (34) The Supreme Court has also held that vertical maximum price fixing, where a supplier or manufacturer requires dealers of its products to charge at or below a maximum price, is not a per se violation but rather should be analyzed under the rule of reason standard. (35) In Lee gin v. PSKS, Inc., the owner of a Texas womens' clothing store claimed that Leegin, a manufacturer and distributor of leather goods, illegally entered into agreements with retailers to set prices for its products. (36) Overturning its nearly 100-year old precedent of Dr. Miles Medicine Company, the Court said that the reasons upon which Dr. Miles relied do not justify a per se rule: the Court in Dr Miles failed to discuss the business reasons that would motivate a manufacturer at that time to make use of vertical price restraints, and the Court treated vertical agreements a manufacturer makes with its distributor as analogous to a horizontal combination among competing distributors, a notion the Court has since rejected. (37) The Court concluded that "vertical agreements establishing minimum resale prices can have either procompetitive or anticompetitive effects, depending upon the circumstances in which they are formed," and that the rule of reason is the appropriate standard to judge vertical price restraints. (38)

      If restraints are plainly and sufficiently anticompetitive, courts forgo the rule of reason analysis and instead find the restraints per se unreasonable. (39) Under the per se rule, courts presume the illegality of activities that inherently restrain trade and lack any redeeming purpose. (40) 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. (41) Under the per se rule, the government need only prove the existence of an unlawful agreement and need not prove anticompetitive effects. (42) 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. (43) Agreements implicating the per se rule include horizontal price-fixing arrangements (including sales agreements to restrict output (44)), horizontal market allocation, some group boycotts, and some tying arrangements--each of which is described briefly below.

      Horizontal market allocation occurs when competitors portion off the market to reduce competition. For example, the Court has held that agreements to allocate territories between competing providers of bar review courses, (45) and billboard market allocation agreements between horizontal competitors (46) were both per se illegal. However, patent settlements in conjunction with reverse payments, also known as "pay-for-delay" agreements, may violate antitrust laws if the settlement stems only from a desire to maintain a share of patent-generated monopoly profits. (47) In Actavis...