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Antitrust 101: The Anti-Competition Blocker

Kyla J Houge

Antitrust 101: The Anti-Competition Blocker
Nastasic via iStock

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Occasionally the news will announce a planned merger of two large companies. Often following this announcement, much time passes with little fanfare before a second announcement is made indicating that the merger was either approved or has been blocked. In a separate scenario, the news may announce that a company has been suspected of price fixing or price discriminating or making false advertisements and individuals who work for the company are suddenly finding themselves facing prosecution.

As a new practitioner, you may wonder: Why is this news? Why can’t private businesses merge, coordinate on prices, and operate freely without any government interference? After all, a business could create higher quality products at lower prices if the government was “hands-off,” right? The answer: not necessarily. Congress enacted antitrust laws to promote free competition and stop anticompetitive conduct on a federal level. Their goals were to increase competition and increase the quality of goods sold in the marketplace, which would then decrease prices to consumers. With those goals in mind, Congress enacted the Sherman Antitrust Act of 1890, the Clayton Act, and the Federal Trade Commission Act, which are the primary antitrust statutes in effect today.

The Sherman Antitrust Act of 1890

Viewed as the cornerstone of antitrust law, the Sherman Antitrust Act of 1890 (Sherman Act) is the first and foundational piece of legislation passed by Congress, aimed at promoting and preserving competition. Section one of the Sherman Act primarily focused on prohibiting activities that are in restraint of trade, and section two focuses on prohibiting monopolization and attempts to monopolize.

The Clayton Act

In 1914, the Clayton Act was passed. The Clayton Act is aimed at prohibiting potentially anticompetitive conduct at its infancy. It prohibits exclusive dealing arrangements that could potentially lessen competition as well as mergers, consolidations, acquisitions, and joint ventures that may result in substantially decreased competition or that may lead to the creation of a monopoly.

The Federal Trade Commission Act

Also enacted in 1914, The Federal Trade Commission Act accomplishes several goals. It officially established the Federal Trade Commission, which is one of two governmental agencies that enforce antitrust laws. The Federal Trade Commission Act also gives the Federal Trade Commission the authority to prosecute all activities that are in violation of the Sherman and Clayton Acts as well as activities that are contrary to the general spirit of each act. Finally, the Federal Trade Commission Act prohibits false or misleading advertising.

Robinson-Patman Act: A Clayton Act Amendment

In 1936, section two of the Clayton Act was amended. This amendment is commonly known as the Robinson-Patman Act. The Robinson-Patman Act is primarily aimed at manufacturers and makes it illegal for them to sell the same or similar product to competing retailers at different prices. The Robinson-Patman Act makes it illegal for a manufacturer of teddy bears, for example, to sell the same type of teddy bear to a larger retailer at a cheaper price than it would sell to a smaller retailer. This example does not mean that a manufacturer cannot ever offer discounts based on the quantity of the item purchased. It just means that if a manufacturer decides to offer volume discounts, the same volume discount must be offered to all of its buyers of that product and not just certain ones. A failure to do so would violate the Robinson-Patman Act, unless a valid defense is presented that would justify an exemption of the transaction in question.

How Are Antitrust Laws Enforced?

Federal antitrust laws are typically enforced by the Antitrust Division of the Department of Justice or by the Federal Trade Commission. However, private parties, which include individual states, can also bring a private action in a federal district court to enforce federal antitrust laws.

The Antitrust Division of the Department of Justice (DOJ) is the primary enforcer of the Sherman Act and the Clayton Act. They can bring either civil or criminal actions in federal district courts on behalf of the US government for Sherman Act violations. Criminal Sherman Act actions are typically reserved for intentional violations like price-fixing, and violations are considered felonies. Companies are fined up to $100 million for Sherman Act violations, and individuals face fines up to $1 million dollars with imprisonment for up to 10 years. If either amount is more than $100 million, the maximum fine can be increased to twice the amount of money lost by the victim or double the amount gained by the violator. For Clayton Act Violations, the DOJ can seek civil injunctions and damages on behalf of the US Government.

The Federal Trade Commission (FTC) brings its actions under the Federal Trade Commission Act, which encompasses all violations of the Sherman Act and the Clayton Act in addition to other activities that harm competition. The FTC’s actions are brought before an administrative law judge and can be appealed to the full commission. The full commission’s decision can only be appealed to a federal court of appeals if it is averse to the respondent. Upon the determination by the commission that an act is illegal, the commission can issue cease and desist orders. Violators of cease and desist orders can be punished with the imposition of a civil penalty exceeding $13,000 for each violation.

What about State Antitrust Laws?

Most states have their own antitrust statutes that are enforced by the attorney general of the state or by private parties. While many states have modeled their statutes after federal antitrust laws, as a new practitioner, it is important to familiarize yourself with your state’s antitrust statutes prior to advising your business clients.