Chapter 5. Restraints of Trade
| Pages | 225-277 |
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CHAPTER V
RESTRAINTS OF TRADE
A. Introduction
This chapter examines the implications of Section 1 of the Sherman
Act for actors in the telecommunications industry. Section 1 makes
illegal “[e]very contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce.”1 Despite its language, the
Act does not prohibit every restraint of trade. As the Supreme Court
noted in Chicago Board of Trade v. United States,2 “Every agreement
concerning trade, every regulation of trade, restrains. To bind, to
restrain, is of their very essence.”3 Such agreements are not necessarily
illegal. The Sherman Act only proscribes restraints of trade that are
anticompetitive. Furthermore, the Sherman Act does not protect
competition solely for the benefit of protecting competitors.4
1. Requirement of Contract, Combination or Conspiracy
Unilateral actions are outside the scope of Section 1 and are
generally reserved for analysis under Section 2 of the Act.5 As the very
language of Section 1 indicates, a reviewing court must first find
evidence of a contract, combination or conspiracy before finding a
violation.6
Courts do not need direct proof of an agreement to find that two
companies have engaged in a conspiracy or combination in restraint of
trade. They can infer a conspiracy or agreement merely from the
1. 15 U.S.C. § 1.
2. 246 U.S. 231 (1918).
3. Id. at 239.
4. “The antitrust laws . . . were enacted for ‘the protection of competition,
not competitors.’” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429
U.S. 477, 488 (1977) (quoting Brown Shoe Co. v. United States, 370 U.S.
294, 320 (1962)) (emphasis by court).
6. Courts generally view the terms combination and conspiracy as
synonymous. See 6 PHILIP AREEDA, ANTITRUST LAW, ¶ 1403 (1986).
All three terms are generally considered synonymous with “agreement,”
and require a “meeting of the minds.” See Monsanto, 465 U.S. at 764.
226 Telecom Antitrust Handbook
conduct of the defendants.7 Furthermore, formal agreement to restrain
trade is unnecessary. “A §1 agreement may be found when ‘the
conspirators had a unity of purpose or a common design and
understanding, or a meeting of minds in an unlawful arrangement.’”8 If
a company does not formally accept a competitor’s invitation to restrain
trade, but nevertheless acts as if a formal arrangement is in place, a
conspiracy may be found.9
2. Intraenterprise Conspiracy
The Supreme Court has held that concerted action between a parent
and its wholly owned subsidiary cannot be a Section 1 agreement.10 In
Copperweld Corp. v. Independence Tube Corp.,11 the Court stated that
Congress designed Section 1 to police coordinated action between
competitors because “ [c]oncerted activity inherently is fraught with anti-
competitive risk. It deprives the marketplace of the independent centers
of decision making that competition assumes and demands. In any
conspiracy, two or more entities that previously pursued their own
interests separately are combining to act as one for their common
benefit.”12 The Court, however, noted that “[a] parent and its wholly
owned subsidiary have a complete unity of interest.”13 Therefore, an
agreement between a parent and its wholly owned subsidiary does not
“bring together economic power that was previously pursuing divergent
goals.”14 Instead, such agreements are similar to coordination of practice
Interstate Circuit v. United States, 306 U.S. 208, 221 (1939) (holding that
“[i]n order to establish agreement,” the government can “rely on
inferences drawn from the course of conduct of the alleged
conspirators”).
(1984) (quoting American Tobacco Co. v. United States, 328 U.S. 781,
810 (1946)).
10. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984);
MCI Telecommunications Corp. v. Graphnet, Inc., 881 F. Supp 126
(D.N.J. 1995).
11. 467 U.S. 752 (1984).
12. Copperweld, 467 U.S. at 768-769.
13. Id. at 771.
14. Id. at 769.
Restraints of Trade 227
between a corporation and one of its unincorporated divisions, which
would clearly fall outside the scope of Section 1.15
Lower courts have applied Copperweld expansively to the
telecommunications industry. For example, in Direct Media Corp. v.
Camden Telephone and Telegraph Co.,16 the court granted summary
judgment against an independent telephone directory publisher which
alleged that a rival publisher and a corporation holding a 51 percent stake
of the rival publisher conspired to hold telephone subscriber information
at an unreasonably high price in contravention of the 1996
Telecommunications Act.17 Although the rival publisher, Camden
Telephone, was not a wholly owned subsidiary of the parent company,
TDS Telecom Corp., the court followed the reasoning in Copperweld by
requiring proof that Camden Telephone and TDS had distinct business
interests to support a conspiracy finding.18 “An internal agreement
among related corporate entities to further a single goal does not create
an actionable conspiracy for purposes of the Sherman Act.”19
3. Per se v. Rule of Reason Analysis
Although Section 1 states that every contract, combination, or
conspiracy in restraint of trade is illegal, in practice, only unreasonable
restraints are prohibited. Courts have judged certain conduct under the
rule of reason ever since the Supreme Court’s decision in Standard Oil
Co. v. United States.20 Under Section 1, this requires the finder of fact to
determine the harm a given restraint causes to competition, whether there
is a legitimate objective to the challenged action, and whether the
restraint is reasonably necessary to achieve the legitimate objective.21
The courts have deemed certain conduct, however, so anti-
competitive that there can never be a legitimate objective to justify the
restraint. Such conduct is said to be “per se” illegal. For this class of
conduct, courts need not apply the rule of reason before declaring the
conduct illegal. Nevertheless, it is important to note that the rule of
reason still underlies the determination of per se rules.22
15. See id. at 770-771.
16. 989 F. Supp. 1211 (S.D. Ga. 1997).
17. Id. at 1215-16.
18. Id. at 1216-17.
19. Id. at 1217.
¶ 1500 (1986).
21. See AREEDA, supra note 20, ¶ 1502.
22. See id. ¶ 1509.
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