Antitrust violations.

• Author: Amorosi, John D.
• Position: Ninth Survey of White Collar Crime

1. Elements of the Offense 404 A. Conspiracy 404 B. Restraint of Trade 405 C. Interstate Nexus 407 D. Intent 409 II. The Robinson-Patman Act 410 III. Defenses 412 A. Meeting Competition 412 B. Limitation of Actions 413 C. Single Entity 413 D. Double Jeopardy 414 E. Unsettled Law 415 F. Respondeat Superior 416 G. Withdrawal from Conspiracy 417 H. Regulated Industry 417 I. State-action Immunity 418 IV. Enforcement 420 V. Recent Developments: The Dairy Industry 421 Section 1 of the Sherman Act(1) ("Act") provides for criminal sanctions against any person "who shall make any contract or engage in any combination or conspiracy" in restraint of interstate commerce.(2) The Act, which is the primary federal antitrust provision, applies to both criminal and civil offenses, but does not distinguish between them.(3) Although Congress intentionally left the task of distinguishing between civil and criminal offenses to the judiciary,(4) the Act includes a number of common law terms to assist the courts in their task.(5) The lack of a clear legislative pronouncement of their meaning has resulted in the development of a federal common law.(6) The Supreme Court has characterized the Sherman Act as a "charter of freedom [with a] generality and adaptability comparable to that found desirable in constitutional provisions."(7)

1. Elements of the Offense

   A civil plaintiff must establish three elements to prove a violation of section 1 of the Sherman Act: (1) two or more entities formed a combination or conspiracy; (2) the combination or conspiracy (potentially) produces an unreasonable restraint of trade or commerce; and (3) the restrained trade or commerce is interstate in nature.(8) In a criminal antitrust prosecution under section 1 of the Sherman Act, the government must prove an additional element: that the defendants intended to restrain commerce and acted "with knowledge of [the] probable consequences" of their actions.(9)

   1. Conspiracy

      Under section I of the Sherman Act, a conspiracy "must comprise an agreement, understanding or meeting of the minds between at least two competitors, for the purpose of or with the effect of unreasonably restraining trade."(10) The contractual form and the ultimate success of the venture are immaterial as long as the agreement is formed.(11)

   2. Restraint of Trade

      The Supreme Court has noted that the term "restraint of trade" "refers not to a particular list of agreements, but to a particular economic consequence, which may be produced by quite different sorts of agreements in varying times and circumstances."(12) Such consequences include elimination of competition, creation of a monopoly, artificial maintenance of prices, and interference with the free play of market forces.(13)

      In determining whether a given activity constitutes an illegal restraint of trade, courts have employed two distinct analytical approaches. First is the "per se" rule announced by the Supreme Court in United States v. Socony-Vacuum Vacuum Oil Co.(14) Application of this rule has been limited to activities which have no legitimate justification and lack any redeeming competitive purpose:(15) price-fixing,"(16) division of markets,(17) group boycotts,(18) and tying arrangements(19) are examples. Under "per se" scrutiny, any activity in restraint of trade is held to be illegal.(20) Courts presume anticompetitive effects and the defendant's intent to produce such effects. The government need only prove the existence of an unlawful agreement.(22)

      The second approach, the "rule-of-reason" standard applies to activities which have not been labeled "clearly anticompetitive" under the Sherman Act.(23) Under the rule-of-reason, courts analyze the anticompetitive effects of the agreement to determine if the activity poses an "unreasonable" restraint on free trade. Courts may also take into account the possibility that some arguably anticompetitive practices may actually increase economic efficiency and competitiveness and therefore not constitute a violation.(24) The Supreme Court affirmed that there is a presumption favoring the rule-of-reason standard over per se analysis: a "departure from that standard must be justified by demonstrable economic effect. . . ."(25)

   3. Interstate Nexus

      To establish jurisdiction under the Sherman Act, the government must allege and prove a sufficient connection between the defendant's illegal activities and interstate commerce.(26) The historical expansion of congressional power under the Commerce Clause has resulted in the expanded reach of the Sherman Act.(27) "Purely local" trade practices are exempt from the Sherman Act only if they are not in the flow of interstate commerce and have no significant impact on that flow.(28) Temporary pauses in the flow of interstate commerce do not terminate the interstate nexus for the purposes of the interstate commerce requirement.(29)

      Courts have split between two distinct tests in determining whether the interstate commerce requirement has been met: the "in the flow of interstate commerce" test, and the "effect on interstate commerce" test.

      Under the "in the flow of commerce" standard, the government must prove that the challenged activity: (1) involves a "substantial volume of interstate commerce;" and (2) "is an essential, integral part of the transaction and is inseparable from its interstate aspects."(30) The Eleventh Circuit, however, has held that jurisdiction under the "in flow of commerce" theory is not established where the defendant's customer's activities were in the flow of interstate commerce, but the defendant's activities were not.(31)

      The "effect on commerce" test primarily applies to interstate activity. Under this analysis the government must prove that "(1) a substantial amount of interstate commerce was involved, and (2) the challenged activity [does not have an] 'insubstantial effect' on interstate commerce."(32) According to one commentator, this "practical effects" test comes "so close to covering virtually every restraint that the judicial formulae covering proof of jurisdiction seem mainly to complicate, confuse and lengthen antitrust litigation without affecting the outcome."(33)

      Lower courts have applied conflicting interpretations of the Supreme Court's holding in McLain v. Real Estate Board of New Orleans,(34) wherein the Court articulated the effect-on-commerce test.(35) The point of controversy in McLain is whether the interstate nexus applies to the specific challenged activity, or to the defendant. The Ninth Circuit adopted the latter (broader) approach in Western Waste Service Systems v. Universal Waste Control.(36) The court held that as long as the defendant's business activities have an interstate impact, the antitrust violation alleged need not have affected interstate commerce.(37) Conversely, the Tenth Circuit expressed a narrower view in Crane v. Intermountain Health Care, Inc.(38) The Crane court found that the proper focus after McLain continues to be on the nexus between interstate commerce and the challenged activity, not on the defendant's general or overall business.(39)

   4. Intent

      In United States v. United States Gypsum Co.,(40) the Supreme Court held that a section 1 criminal prosecution generally requires proof of the defendant's intent,(41) rather than "constru[ing] the Sherman Act as mandating a regime of strict-liability criminal offenses."(42) The Court emphasized that proof of "the perpetrator's knowledge of the anticipated consequences is a sufficient predicate for a finding of criminal intent."(43) Proof of criminal intent requires either direct evidence or an inference drawn from evidence.(44) A mere presumption of intent is usually inconclusive, especially in cases involving acts which have not been deemed inherently anticompetitive.(45)

      Gypsum involved an exchange of price information that the Court found illustrative of the "gray zone of socially acceptable and economically justifiable business conduct."(46) The Court distinguished such activity from that which is per se illegal based upon its unquestionably anticompetitive effect. Since per se illegalities do not require any showing of mens rea,(47) the lower courts have applied the intent requirements from Gypsum only in rule-of-reason cases.(48) Consequently, the Department of Justice Manual provides that proof of the existence of a price-fixing or bid-rigging arrangement is customarily sufficient to establish intent.(49)

      An additional controversy surrounding the Court's decision in Gypsum has arisen over proper jury instructions under the rule-of-reason standard.(50) The Court held that the requirement of intent for rule-of-reason cases should not be presumed as a matter of law, but rather is a permissible inference based on the existence of an agreement with potential anticompetitive effects.(51) Therefore, in cases in which the per se nature of the alleged conduct is uncertain, the Antitrust Division of the Department of Justice should first present evidence of anticompetitive effects and then ask for jury instructions that explain the Gypsum knowledge standard for proving intent.(52)

2. The Robinson-Patman Act

   Although seldom used in antitrust enforcement, section 3 of the Robinson-Patman Act(53) also carries criminal sanctions yet has no civil applications.(54) The statute enjoins three sorts of economic activity: "(a) general price discriminations, (b) geographical price discriminations, and (c) selling 'at unreasonably low prices for the purpose of destroying competition or eliminating a competitor.'"(55) The provision prohibits contemporaneous price discriminations among competitors effected through discounts or rebates(56) or due to locality,(57) for the purpose of destroying competition. By barring sales at "unreasonably low prices" by an entity that has the intent of destroying competition, the statute forbids those sales that are made below cost and unsupported by a reasonable business justification.(58)

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