The Identification and Proof of Horizontal Agreements under the Antitrust Laws

• Published date: 01 March 1993
• Date: 01 March 1993
• DOI: 10.1177/0003603X9303800102
• Author: William E. Kovacic
• Subject Matter: Article

The Antitrust Bulletin/Spring 1993

The identification and

proof

of

horizontal agreements under

the antitrust laws

BY WILLIAM E. KOVACIC*

I. Introduction

5

American antitrust law draws a crucial distinction between uni-

lateral and collective behavior. Restrictions on unilateral conduct,

effectuated mainly through the Sherman Act's prohibition against

monopolization and attempted monopolization.' are hardly lin-

important.s but they usually come into play only when the defen-

*Associate Professor, George Mason University

School

of

Law,

and

Of

Counsel to Bryan, Cave in Washington, D.C.

AUTHOR'S NOTE: I am grateful to Jonathan Baker and Kathryn Fenton

for many useful comments and discussions. I also thank the John M. Olin

Foundation and the Sarah Scaife Foundation for their support in the

preparation

of

this article.

15 U.S.C. §2.

2See Kovacic, Failed Expectations: The Troubled Past and Uncer-

tain Future

of

the Sherman Act as a Tool for Deconcentration, 74 IOWA

L.

REV.

1105 (1989).

e1993 by Federal Legal Publications, Inc.

6 The antitrust bulletin

dant

has

attained

considerable

stature

in the

market.!

On

the

whole, firms acting alone face relatively few antitrust risks unless

they have market power.

Although

some

commentators

have

argued

that

antitrust's

treatment

of

horizontal collective action is unduly harsh,' legal

doctrine and government enforcement policy view interfirm col-

laboration involving direct rivals with considerably greater skepti-

cism.>

In many instances

of

joint horizontal action, liability can be

established without regard to the defendants' market power.

For

example, it is irrelevant in cases brought under section I

of

the

Sherman

Act-

that the participants in a horizontal price-fixing

arrangement had little genuine prospect

of

affecting price through

their joint efforts to restrict

output.'

Indeed, when detected, such

conduct frequently results in criminal prosecution.!

See ABA

ANTITRUST

SECTION,

ANTITRUST

LAW

DEVELOPMENTS

212-18,262-67 (3ded.

1992).

4See Jorde &Teece, Innovation, Cooperation, and Antitrust, in

ANTITRUST,

INNOVATION,

AND

COMPETITIVENESS

47 (T. M. Jorde &D. J.

Teece eds., 1992); Demsetz, How Many Cheers

for

Antitrust's

100

Years? 30

ECON.

INQUIRY

207 (1992).

For a discussion of the grounds on

which

antitrust treats collective

conduct less favorably than unilateral conduct, see 6 P. E.

AREEDA,

ANTITRUST

LAW

9-12 (1986).

615

U.S.C.

§1.

7Cf. United States v, Reicher, 777 F. Supp. 901, 903 (D.N.M.

1991) (granting judgment of acquittal to government contractor who

enlisted assistance of a

sham

bidder as part of a scheme to rig bids for a

federal construction project; court concluded that the sham bidder lacked

capacity to perform contract and could not be deemed a "competitor" of

the defendant contractor, thus precluding the application of section 1 to

the challengedbehavior),

revd,

1992-2

Trade Cas.

(CCH)

, 70,083 (10th

Cir.1992).

See U.S. Department of Justice, Antitrust Enforcement Guidelines

for

International Operations, reprinted in 4 Trade Reg. Rep. (CCH)

~

13,109,at §3.1 (Nov. 10, 1988).

Horizontal agreements : 7

Because characterizing action as collective can have powerful

consequences, antitrust litigants devote considerable attention

to determining whether the behavior in question stemmed from

an agreement and therefore implicated section

l's

ban

against

contracts,

combinations,

or conspiracies in restraint

of

trade.

Asubstantive legal command whose application hinges on the

existence

of

an agreement must solve two closely related prob-

lems. It must define the types

of

conduct that constitute an agree-

ment,

and

it

must

determine

the

means

by

which

such

an

agreement can be proven in a trial.

Antitrust disputes vary greatly according to the difficulty that

these problems pose. In some instances there is no need for elabo-

rate inquiry. The defendants collectively devise acollaborative

strategy and expressly exchange assurances that they will adhere

to a common course of action; they formulate plans and exchange

assurances directly in writing (for example, by circulating and

signing amemorandum), in face-to-face meetings of the partici-

pants, or in telephone conversations. The fact of collective efforts

to set pricing or output levels, divide markets, or allocate cus-

tomers emerges unmistakably through documents or testimony

from participants to the challenged arrangement.? When detected

by government enforcement officials, episodes

of

such behavior

rarely result in fully litigated trials. Instead, where the fact

of

col-

lective action and its purpose are easily ascertained, enforcement

initiatives ordinarily are concluded through plea agreements,

ci~il

consent orders, or damage settlements.w

The majority

of

cases, however, present analytical and eviden-

tiary challenges

of

much greater complexity. Such disputes come

in essentially three forms. In the first set of matters, the defen-

dants covertly but expressly exchange assurances, yet the trial

record contains no direct evidence (for example, aletter circulated

9See United States v. Alston, 974 F.2d 1206 (9th Cir. 1992); United

States v, All Star Indus., 962 F.2d 465 (5th Cir. 1992).

10 See L. B.

SCHWARTZ,

J. J.

FLYNN

&H.

FIRST,

FREE

ENTERPRISE

AND

ECONOMIC

ORGANIZATION:

ANTITRUST

438 (6th ed. 1983); Ginsburg, Non-

price Competition, 38

ANTITRUST

BULL.

83 (1993).