Antitrust violations.

• Author: Burney, Nathaniel
• Position: Tenth Survey of White Collar Crime

1. Elements of the Offense ............................... 158

   1. Conspiracy ......................................... 159

   2. Restraint of Trade ................................. 159

   3. Interstate Nexus .................................. 161

   4. Intent ............................................ 163 II. Price Discrimination: The Robinson-Patman Act ......... 164 III. Defenses .............................................. 166

   1. Unsettled Law ..................................... 166

   2. Withdrawal from Conspiracy ........................ 167

   3. Single Entity ...................................... 167

   4. Statute of Limitations ............................ 168

   5. Double Jeopardy ................................... 169

   6. Meeting Competition ............................... 170

   7. Respondeat Superior ............................... 171

   8. State Action Immunity ............................. 172

1. Regulated Industry ................................ 173

   10. Foreign Commerce - effects, Comity, and Foreign Sovereign

       Compulsion ......................................... 174 IV. Enforcement ........................................... 176

   1. Federal Enforcement ............................... 176

   2. State Enforcement ................................. 178

5. Recent Developments .................................. 179

   1. The Dairy Industry ................................ 179

   2. Professional Baseball ............................. 181

   Section I 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, however, has resulted in the development of a federal common law.(6) As such, the Supreme Court has characterized the Sherman Act as a "charter of freedom [with a] generality and adaptability comparable to that found to be 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 produces, or potentially produces,(8) an unreasonable restraint of trade or commerce; and (3) the restrained trade or commerce is interstate in nature.(9) In a criminal antitrust prosecution under Section 1 of the Sherman Act, the government must also prove that the defendants intended to restrain commerce and acted with knowledge of the probable consequences of their actions.(10)

   1. Conspiracy

      Under Section 1 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."(11) The contractual form and the ultimate success of the venture are immaterial as long as the agreement is formed.(12)

   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."(13) Such consequences include elimination of competition, creation of a monopoly, artificial maintenance of prices, and interference with the free play of market forces.(14)

      In determining whether a given activity constitutes an illegal restraint of trade, courts have employed two distinct analytical approaches. The "per se" rule, announced by the Supreme Court in United States v. Socony-Vacuum Oil Co.,(15) is limited to activities which have no legitimate justification and lack any redeeming competitive purpose,(16) such as price-fixing,(17) division of markets,(18) group boycotts,(19) and tying arrangements(20). Under per se scrutiny, any activity in restraint of trade is illegal.(21) Courts presume, under this analysis, both anti-competitive effects and the defendant's intent to produce such effects.(22) The government, therefore, need only prove the existence of an unlawful agreement.(23)

      The second approach, the rule-of-reason standard, applies to activities which have not been labeled "clearly anti-competitive" under the Sherman Act.(24) The Supreme Court has indicated a presumption favoring the rule-of-reason standard over per se analysis by stating that a departure from the rule-of-reason standard must be justified by demonstrable economic effect.(25) In applying the rule-of-reason standard, courts analyze the anti-competitive 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 anti-competitive practices may actually increase economic efficiency and competitiveness, and therefore, not constitute a violation.(26)

   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.(27) The historical expansion of congressional power under the Commerce Clause has resulted in an expanded reach of the Sherman Act.(28) "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.(29) Temporary pauses in the flow of interstate commerce do not necessarily terminate the interstate nexus for purposes of the interstate commerce requirement.(30)

      Courts have split between two distinct tests to determine 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" test, 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."(31) The Eleventh Circuit, however, has held that jurisdiction under the "in the 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.(32)

      The "effect on commerce" test requires the government to 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."(33) 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."(34)

      The Court articulated the effect on commerce test in McLain v. Real Estate Board of New Orleans.(35) Though the McLain court asserted that one of the requisites of a Sherman Act claim was the "existence of a demonstrable nexus between the defendants' activity and interstate commerce,"(36) lower courts have applied this standard with conflicting interpretations.(37)

   4. Intent

      In United States v. United States Gypsum Co.,(38 )the Supreme Court held that an essential element of a criminal antitrust offense is proof of the defendant's state of mind or intent.(39) Proof of criminal intent "must be established by evidence and inferences drawn therefrom."(40) A mere "presumption of wrongful intent from proof of an effect on prices" is insufficient.(41)

      Gypsum involved an exchange of price information that the Court found illustrative of the "gray zone of socially acceptable and economically justifiable business conduct."(42) The Court acknowledged the difficulty in distinguishing such activity from that which is proscribed by the Sherman Act based upon its unquestionably anti-competitive effect.(43) Consequently, proof of the existence of price-fixing or bid-rigging arrangements, which are per se illegal, is customarily sufficient to establish intent.(44) Since per se illegalities do not require any showing of intent,(45) the lower courts have applied the intent requirement from Gypsum only in rule-of-reason cases.(46)

      An additional controversy surrounding the Court's decision in Gypsum arose over proper jury instructions under the rule-of-reason standard.(47) The Court held that the existence of intent in rule-of-reason cases may not be presumed as a matter of law, but rather is a permissible inference based on the evidence presented, such as the existence of an agreement with potential anticompetitive effects.(48) Therefore, in cases in which the per se nature of the alleged conduct is uncertain, the government should first present evidence of anticompetitive effects and then ask for jury instructions that explain the Gypsum knowledge standard for proving intent.(49)

2. Price Discrimination: The Robinson-Patman Act

   The Robinson-Patman Anti-Discrimination Act(50) prohibits any price discrimination(51) that does not reflect an actual savings in cost, or that does not reflect a real need to compete with a rival's lower price. Because of the Act's anticompetitive nature, however, the federal government has avoided bringing Robinson-Patman actions over the past twenty years.(52)

   While most of the Act sets forth civil violations, Section 3(53) establishes criminal violations. This section, which is almost never invoked, makes it a criminal offense(54) for a business to purposely attempt to wipe out a rival, or to eradicate competition altogether, by selling at "unreasonably low prices,"(55) by general price...