powerpoint slides to accompany essentials of business and online commerce law 1 st edition by henry...

Slides developed byLes Wiletzky Copyright © 2006 by Pearson Prentice-Hall. All rights reserved

PowerPoint Slides to AccompanyESSENTIALS OF BUSINESS AND

ONLINE COMMERCE LAW1st Edition

by Henry R. Cheeseman

Chapter 21Antitrust Law

Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. 21 - 2

Antitrust LawsAntitrust LawsA series of laws enacted to limit A series of laws enacted to limit anticompetitive behavior in almost anticompetitive behavior in almost all industries, businesses, and all industries, businesses, and professions operating in the United professions operating in the United States.States.


Federal Antitrust Laws Sherman Act of 1890

Clayton Act of 1914

Federal Trade Commission (FTC) Act of 1914

Robinson-Patman Act of 1930


Antitrust Enforcement The federal antitrust statutes are broadly drafted

to: reflect the government’s enforcement policy allow the government to respond to economic, business,

and technological changes Each administration adopts an enforcement

policy for antitrust laws Antitrust laws are enforced more stringently at

some times than at other times


Antitrust Penalties Federal antitrust laws provide the following

penalties: Criminal sanctions Civil penalties Private civil actions Effect of a government judgment


Section 1 of the Sherman Act: Restraints of Trade Prohibits contracts, combinations, and

conspiracies in restraint of trade To violate Section 1, the restraint must be

found to be unreasonable under either of two tests: Rule of reason Per se rule

Requires the concerted action of two or more parties


Rules to Determine Lawfulness of a Restraint

Rule of ReasonRule of Reason A rule that holds that only

unreasonable restraints of trade violate Section 1 of the Sherman Act

Adopted by the U.S. Supreme Court in Standard Oil Company of New Jersey v. United States

Per se RulePer se Rule A rule that is applicable to

those restraints of trade considered inherently anticompetitive

Once this determination is made, the court will not permit any defenses or justifications to save it


Horizontal Restraint of Trade

CompetitorCompetitorNo. 1No. 1

CompetitorCompetitorNo. 2No. 2

AgreementAgreementto restrain tradeto restrain trade

A restraint of trade that occurs when two or more competitors at the same level of distributionlevel of distribution enter into a contract, combination, or conspiracy to restrain trade.


Horizontal restraints of trade include: Price-Fixing –Price-Fixing – occurs where competitors in the same line of

business agree to to set the price of the goods they sell. A per seper se violation.

Division of Markets –Division of Markets – occurs when competitors agree that each will serve only a designated portion of the market. A per seper se violation.

Group Boycott –Group Boycott – occurs when two or more competitors at one level of distribution agree not to deal with others at another level of distribution.


Group Boycott by Sellers: Agreement Not to Deal With a Customer

SellerSellerCompetitorCompetitor

No. 1No. 1

AgreementAgreementnot to deal withnot to deal with

a customera customer

BoycottedBoycottedCustomerCustomer

SellerSellerCompetitorCompetitor

No. 2No. 2


Group Boycott by Purchasers: Agreement Not to Deal With a Supplier

PurchaserPurchaserCompetitorCompetitor

No. 1No. 1

PurchaserPurchaserCompetitorCompetitor

No. 2No. 2AgreementAgreementnot to deal withnot to deal with

a suppliera supplier

BoycottedBoycotted SupplierSupplier


Vertical Restraints of Trade Occurs when two or more

parties on different levels different levels of distributionof distribution enter into a contract, combination, or conspiracy to restrain trade

Supplier

Customer

Agreement to restrain trade


Forms of Vertical Restraint (1 of 2)

Resale Price Maintenance (vertical price- Resale Price Maintenance (vertical price- fixing)fixing) – occurs when a party at one level of distribution enters into an agreement with a party at another level to adhere to a price schedule that either sets or stabilizes prices A per seper se violation of Section 1 of the Sherman

Act


Forms of Vertical Restraint (2 of 2)

Nonprice Vertical RestraintsNonprice Vertical Restraints – are unlawful under Section 1 of the Sherman Act if their anticompetitive effects outweigh their pro-competitive effects Include situations where a manufacturer assigns exclusive

territories to retail dealers, or Limits the number of dealers that may be located in a

certain territory


Defenses to Section 1 of the Sherman Act (1 of 2)

Unilateral Refusal to DealUnilateral Refusal to Deal A unilateral choice by one party not to deal with

another party This does not violate Section 1 of the Sherman

Act because there is no concerted action with others

This rule was announced in United States v. Colgate & Co.

Often referred to as the Colgate doctrineColgate doctrine


Defenses to Section 1 of the Sherman Act (2 of 2)

Conscious ParallelismConscious Parallelism Occurs when two or more firms act the same

but without concerted action This does not violate Section 1 because there

has been no concerted action Noerr DoctrineNoerr Doctrine

Two or more parties may petition the government to enact laws or to take other action


Act: Monopolization Section 2 of the Sherman Prohibits the act of monopolization as well as

attempts and conspiracies to monopolize Can be violated by the conduct of one firm

The following elements are necessary to prove a defendant in violation of Section 2: Relevant market Monopoly power Act of monopolizing


Defining the Relevant Market Relevant product or service marketRelevant product or service market – includes

substitute products or services that are reasonably interchangeable with the defendant’s products or services

Relevant geographical marketRelevant geographical market – the area in which the defendant and its competitors sell the product or service


Monopoly Power The power to control prices or exclude

competition

Measured by the market share the defendant possesses in the relevant market


Willful Act of Monopolizing A required act for there to be a violation of

Section 2 of the Sherman Act e.g., predatory pricing

Possession of monopoly power without such an act does not violate Section 2 of the Sherman Act


Defenses to Monopolization Innocent AcquisitionInnocent Acquisition

Superior business acumen Monopoly that is acquired by superior skill,

foresight, or industry

Natural MonopolyNatural Monopoly Monopoly that is thrust upon the defendant Small market that can support only one

competitor


Section 7 of the Clayton Act: Mergers Section 7 of the Clayton ActSection 7 of the Clayton Act provides that it is

unlawful for a person or business to acquire the stock or assets of another “where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”


Mergers (continued)

The following elements are necessary to prove a violation of Section 7 of the Clayton Section 7 of the Clayton ActAct: Line of commerce – the market that will be

affected by the merger Section of the country – geographical market

that will be affected by the merger Probability of a substantial lessening of

competition


Types of Mergers (1 of 2)

Horizontal MergersHorizontal Mergers A merger between two or

more companies that compete in the same business and geographic market

United States v. Philadelphia National Bank established the presumptive illegality testpresumptive illegality test

Vertical MergersVertical Mergers A merger that integrates the

operations of a supplier and a customer

Backward vertical merger The customer acquires the

supplier Forward vertical merger

The supplier acquires the customer


Types of Mergers (2 of 2)

Market Extension MergersMarket Extension Mergers A merger between two

companies in similar fields whose sales do not overlap

Geographical market extension merger

Product market extension merger

Conglomerate MergersConglomerate Mergers A merger that does not fit

into any other category A merger between firms in

totally unrelated businesses Unfair advantage theory


Defenses to Section 7 Actions

The Failing The Failing Company Company DoctrineDoctrine

The Small The Small Company Company DoctrineDoctrine


Premerger Notification Hart-Scott-Rodino Antitrust Improvement Hart-Scott-Rodino Antitrust Improvement

Act of 1976Act of 1976 An act that requires certain firms to notify the FTC and the

Department of Justice in advance of a proposed merger Unless the government challenges the proposed merger

within 30 days, the merger may proceed


Section 3 of the Clayton Act: Tying Arrangements A tying arrangementtying arrangement is a restraint of trade

where a seller refuses to sell one product to a customer unless the customer agrees to purchase a second product from the seller

Section 3 of the Clayton Act prohibits tying arrangements involving sales and leases of goods i.e., tangible personal property


Tying Arrangements (continued)

Section 1 of the Sherman ActSection 1 of the Sherman Act prohibits tying arrangements involving goods, services, intangible property, and real property

A tying arrangement is lawful if there is some justifiable reason for it


Section 2 of the Clayton Act: Price Discrimination Commonly referred to as the Robinson-

Patman Act Sellers often offer favorable terms to their

preferred customers Price discrimination occurs if the seller does

this without just cause Illegal if it results in substantially lessening

competition or creating a monopoly in any line of commerce


Direct Price DiscriminationTo prove a violation of Section 2(a) of the Section 2(a) of the Robinson-Patman ActRobinson-Patman Act, the following elements of price discrimination must be shown:

1. The defendant sold commodities of like grade and quality,

2. to two or more purchasers at different prices at approximately the same time, and

3. the plaintiff suffered injury because of the price discrimination


Indirect Price Discrimination A form of price discrimination that is less

readily apparent than direct forms of price discrimination

e.g., favorable credit terms, freight charges, and such to favored customers

These are violations of the Robinson-Patman Robinson-Patman ActAct


Defenses to Section 2(a) Actions The Robinson-Patman Act establishes three

statutory defenses to Section 2(a) liability:1. Cost justification defense2. Changing conditions defense3. Meeting the competition defense


Section 5 of the Federal Trade Commission Act: Unfair Methods of Competition Section 5 of the FTC ActSection 5 of the FTC Act – prohibits unfair

methods of competition and unfair or deceptive acts or practices in or affecting commerce

Section 5 is broader than the other antitrust laws

The FTC is exclusively empowered to enforce the FTC Act


Exemptions From Antitrust Laws Statutory ExemptionsStatutory Exemptions – Exemptions from

antitrust laws that are expressly provided in statutes enacted by Congress

Implied ExemptionsImplied Exemptions – Exemptions from anti-trust laws that are implied by the federal courts

State Action ExemptionsState Action Exemptions – Business activities that are mandated by state law are exempt from federal antitrust laws


State Antitrust Laws Most states have enacted antitrust statutes

State statutes are usually patterned after the federal antitrust statutes

State antitrust laws are used to attack anti-competitive activity that occurs in intrastateintrastate commerce

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