PowerPoint Slides to Accompany
ESSENTIALS OF BUSINESS AND
ONLINE COMMERCE LAW
1st Edition
by Henry R. Cheeseman
Chapter 21
Antitrust Law
Slides developed by
Les Wiletzky
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved
Antitrust Laws
A series of laws enacted to limit
anticompetitive behavior in almost
all industries, businesses, and
professions operating in the United
States.
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Federal Antitrust Laws

Sherman Act of 1890

Clayton Act of 1914

Federal Trade Commission (FTC) Act of 1914

Robinson-Patman Act of 1930
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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
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Antitrust Penalties

Federal antitrust laws provide the following
penalties:

Criminal sanctions

Civil penalties

Private civil actions

Effect of a government judgment
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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
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Rules to Determine Lawfulness of a
Restraint


Rule 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


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Per 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
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Horizontal Restraint of Trade
Competitor
No. 1
Agreement
to restrain trade
Competitor
No. 2
A restraint of trade that occurs when two or more
competitors at the same level of distribution enter
into a contract, combination, or conspiracy to
restrain trade.
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Horizontal restraints of trade include:



Price-Fixing – occurs where competitors in the same line of
business agree to to set the price of the goods they sell. A
per se violation.
Division of Markets – occurs when competitors agree that
each will serve only a designated portion of the market. A per
se violation.
Group Boycott – occurs when two or more competitors at
one level of distribution agree not to deal with others at
another level of distribution.
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Group Boycott by Sellers: Agreement Not
to Deal With a Customer
Seller
Competitor
No. 1
Agreement
not to deal with
a customer
Seller
Competitor
No. 2
Boycotted
Customer
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Group Boycott by Purchasers: Agreement
Not to Deal With a Supplier
Boycotted
Supplier
Purchaser
Competitor
No. 1
Agreement
not to deal with
a supplier
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Purchaser
Competitor
No. 2
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Vertical Restraints of Trade

Occurs when two or more
parties on different levels
of distribution enter into a
contract, combination, or
conspiracy to restrain trade
Supplier
Agreement to
restrain trade
Customer
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Forms of Vertical Restraint (1 of 2)

Resale Price Maintenance (vertical pricefixing) – 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 se violation of Section 1 of the Sherman
Act
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Forms of Vertical Restraint (2 of 2)

Nonprice Vertical Restraints – are unlawful
under Section 1 of the Sherman Act if their
anticompetitive effects outweigh their procompetitive 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
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Defenses to Section 1 of the Sherman Act
(1 of 2)

Unilateral 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 doctrine
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Defenses to Section 1 of the Sherman Act
(2 of 2)

Conscious 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 Doctrine

Two or more parties may petition the
government to enact laws or to take other
action
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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
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Defining the Relevant Market

Relevant product or service market – includes
substitute products or services that are
reasonably interchangeable with the
defendant’s products or services

Relevant geographical market – the area in
which the defendant and its competitors sell
the product or service
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Monopoly Power

The power to control prices or exclude
competition

Measured by the market share the defendant
possesses in the relevant market
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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
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Defenses to Monopolization

Innocent Acquisition



Superior business acumen
Monopoly that is acquired by superior skill,
foresight, or industry
Natural Monopoly


Monopoly that is thrust upon the defendant
Small market that can support only one
competitor
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Section 7 of the Clayton Act: Mergers

Section 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.”
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Mergers (continued)

The following elements are necessary to
prove a violation of Section 7 of the Clayton
Act:



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
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Types of Mergers (1 of 2)


Horizontal 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
test


Vertical Mergers
A merger that integrates the
operations of a supplier and
a customer
Backward vertical merger


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The customer acquires the
supplier
Forward vertical merger

The supplier acquires the
customer
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Types of Mergers (2 of 2)
Market Extension Mergers
 A merger between two
companies in similar fields
whose sales do not overlap
 Geographical market
extension merger
 Product market extension
merger



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Conglomerate Mergers
A merger that does not fit
into any other category
A merger between firms in
totally unrelated businesses
Unfair advantage theory
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Defenses to Section 7 Actions
The Failing
Company
Doctrine
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The Small
Company
Doctrine
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Premerger Notification

Hart-Scott-Rodino Antitrust Improvement
Act 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
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Section 3 of the Clayton Act: Tying
Arrangements


A tying 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
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Tying Arrangements (continued)

Section 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
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Section 2 of the Clayton Act: Price
Discrimination




Commonly referred to as the RobinsonPatman 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
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Direct Price Discrimination
To prove a violation of Section 2(a) of the
Robinson-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
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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
Act
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Defenses to Section 2(a) Actions

The Robinson-Patman Act establishes three
statutory defenses to Section 2(a) liability:
1. Cost justification defense
2. Changing conditions defense
3. Meeting the competition defense
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Section 5 of the Federal Trade Commission
Act: Unfair Methods of Competition



Section 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
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Exemptions From Antitrust Laws



Statutory Exemptions – Exemptions from
antitrust laws that are expressly provided in
statutes enacted by Congress
Implied Exemptions – Exemptions from antitrust laws that are implied by the federal
courts
State Action Exemptions – Business activities
that are mandated by state law are exempt
from federal antitrust laws
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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 anticompetitive activity that occurs in intrastate
commerce
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