CHAPTER § 4.01 Framework of Antitrust Law

• Jurisdiction: United States

§ 4.01 Framework of Antitrust Law

[1] Goals of Antitrust

The Sherman Act¹ was originally enacted in 1890 and remains at the heart of antitrust enforcement and jurisprudence in the United States. The Sherman Act reflects the "legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services."² Indeed, Congress has repeatedly exercised this legislative judgment, resulting in the later passage of several other landmark pieces of antitrust legislation, including the Clayton Act,³ the Federal Trade Commission Act (the "FTC Act"),⁴ and the Robinson-Patman Act.⁵ Among other things, the primary goal of the antitrust laws is to maximize consumer welfare.

The following section briefly summarizes the major sources of antitrust enforcement and their respective jurisdictions.

[2] Sources of Antitrust Challenges

There are four sources of antitrust enforcement in the United States. The most notable of these sources are the two federal entities charged with antitrust enforcement: the Department of Justice, Antitrust Division ("DOJ") and the Federal Trade Commission ("FTC") (collectively, the "Antitrust Agencies"). State Attorneys General also seek to protect their citizens through the enforcement of state and federal antitrust laws. The private litigant is another source of enforcement and a frequent source of challenges under the antitrust laws.

DOJ's Antitrust Division has sweeping authority under the Sherman and Clayton Acts to enforce the federal antitrust laws.⁶ First and foremost, the DOJ, whose Antitrust Division is headed by an Assistant Attorney General, has the exclusive authority to pursue federal criminal antitrust prosecutions. The criminal penalties can be severe. Currently, the Sherman Act itself carries criminal penalties for individuals which can result in prison terms with a maximum of 10 years and criminal fines of up to $1 million per count.⁷ In addition, the Act permits corporate fines of up to $100 million per count.⁸ However, under an alternative method of criminal-fine computation enacted as part of the Criminal Fines Improvement Act of 1987,⁹ fines have been levied for as much as $500 million.¹⁰

The FTC was established in 1914 to pursue "unfair methods of competition," as described in Section 5 of the FTC Act.¹¹ This language gave the FTC civil authority to pursue all violations explicitly encompassed within the Sherman Act, as well as various other types of anticompetitive conduct.

The Clayton Act and Robinson-Patman Act confer concurrent jurisdiction upon both the DOJ and the FTC to enforce their mandates.¹² This arrangement has created confusion over the years as to which agency will take the lead on particular antitrust investigations. The agencies have strived to eliminate some of this confusion through a "liaison" system in which each agency requests clearance from the other agency before an investigation. In the rare event that the other agency does not grant clearance, liaison officers meet to discuss the matter and decide which agency should handle the matter based on multiple factors, including previous experience.

The two agencies have carved out certain niches within the antitrust arena. For example, the FTC almost exclusively handles Robinson-Patman actions. The FTC also typically reviews mergers in the pharmaceutical- and health care-provider industries under the Clayton Act, while the DOJ traditionally handles issues involving health insurers, as well as investigations of potential anticompetitive agreements between providers.

State attorneys general represent another source of antitrust enforcement. In addition to possessing the power to enforce a state's own antitrust statutes, state attorneys general are empowered under Sections 4 and 16 of the Clayton Act to pursue antitrust actions as private litigants. State attorneys general gained additional enforcement capabilities upon passage of the Hart-Scott-Rodino Act ("HSR Act")¹³ in 1976, which authorizes state attorneys general to act as parens patriae in private suits arising out of the Sherman Act, in effect acting as protector on behalf of their states' citizens to pursue damages suffered by all who were directly harmed by such a violation.

Private antitrust actions are common, but litigants face significant hurdles in the courts. In order to establish standing, a private antitrust plaintiff must prove actual injury, in addition to an antitrust violation, according to a well-established, two-pronged test. First, a plaintiff must prove that it personally has sustained an injury. Second, a plaintiff must prove "antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation."¹⁴ The courts have enforced this second requirement vigorously and have used it to deny standing to private antitrust litigants, rendering it perhaps the most imposing barrier for would-be private plaintiffs.

[3] Statutory Authorities

[a] Sherman Act-Section 1: Unfair Restraints of Trade Through Concerted Action

Section 1 of the Sherman Act is concerned exclusively with anticompetitive conduct arising from agreements between multiple parties. The statutory text of Section 1 states:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade among the several States or with foreign nations, is hereby declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony. . . . ¹⁵

To prevail on a Section 1 claim, three elements must be fulfilled. First, a plaintiff must demonstrate the existence of a contract, combination, or conspiracy.¹⁶ In other words, a plaintiff must show that there was an agreement between the parties. A plaintiff must then demonstrate that the concerted action at issue unreasonably restrains trade. Third, a Section 1 plaintiff must prove that the challenged conduct affects interstate trade or foreign commerce.¹⁷

The Supreme Court clarified the standards for pleading an antitrust conspiracy in civil actions, holding that a complaint must allege "enough facts to state a claim to relief that is plausible on its face."¹⁸ "[A] district court must retain the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed."¹⁹

Upon a showing that some agreement or concerted action was undertaken by the parties, a Section 1 plaintiff must then show that the substance of the agreement unreasonably restrains trade.²⁰ This element has been famously evaluated by courts using one of two separate standards—the "per se rule" and "rule of reason."

[i] Per Se Rule

The Supreme Court has deemed certain types of conduct "per se" illegal, which means that a violation may be established by merely proving an agreement was reached (i.e., a court will not inquire into the justifications for the agreement). The Court explained the rationale for per se treatment by explaining that "there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use."²¹ Courts have applied this per se approach to conduct such as price fixing, bid rigging, and group boycotts.²² Over the years, however, the Court has increasingly limited the per se approach, applying it only when it includes "conduct that is manifestly anticompetitive."²³ Consistent with this trend, the Court reversed its long-standing precedent holding vertical resale price maintenance per se illegal.²⁴

[ii] Rule of Reason

The "prevailing standard of analysis" for a determination of an unlawful restraint of...