Miller_BLTC12E_PPT_ch38.pptx

BUSINESS LAW TodaySTANDARD EDITION TEXT & SUMMARIZED CASES, 12e

Roger LeRoy Miller

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Antitrust Law and Promoting Competition

Chapter 38

Chapter Outline

38-1 The Sherman Antitrust Act

38-2 Section 1 of the Sherman Act

38-3 Section 2 of the Sherman Act

38-4 The Clayton Act

38-5 Enforcement and Exemptions

38-6 U.S. Antitrust Laws in the Global Context

Learning Objectives (slide 1 of 2)

What is a monopoly? What is market power? How do these concepts relate to each other?

What rule do courts apply to price-fixing agreements, and why?

What two types of activities prohibited by Section 2 of the Sherman Act?

What are the four major provisions of the Clayton Act, and what types of activities do these provisions prohibit?

Learning Objectives (slide 2 of 2)

What agencies of the federal government enforce the federal antitrust laws?

When will a U.S. court apply the Sherman Act to foreign persons or entities?

38-1 The Sherman Antitrust Act (slide 1 of 4)

Antitrust laws protect commerce from unlawful restraints and anticompetitive practices.

38-1a Major Provisions of the Sherman Act

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal [and is a felony punishable by a fine and/or imprisonment].

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony [and is similarly punishable].

38-1 The Sherman Antitrust Act (slide 2 of 4)

38-1b Differences between Section 1 and Section 2

Section 1 cases are often concerned with finding an agreement (written or oral) that leads to a restraint of trade.

Section 2 cases deal with the structure of a monopoly that already exists in the marketplace.

38-1 The Sherman Antitrust Act (slide 3 of 4)

38-1 The Sherman Antitrust Act (slide 4 of 4)

38-1c Jurisdictional Requirements

Generally, any activity that substantially affects interstate commerce falls within the scope of the act.

The act also extends to U.S. nationals abroad who are engaged in activities that have an effect on U.S. foreign commerce.

Landmark in the Law

The Sherman Antitrust Act

U.S. Dept of Justice and state attorneys general investigate many complaints and prosecute a number of corporations for Sherman Act violations each year.

38-2 Section 1 of the Sherman Act (slide 1 of 2)

38-2a Per Se Violations versus the Rule of Reason

Per Se Violation: A restraint of trade that is so anticompetitive that it is deemed inherently (per se) illegal.

Rule of Reason: A test used to determine whether an anticompetitive agreement constitutes a reasonable restraint on trade.

Why the Rule of Reason Was Developed

38-2 Section 1 of the Sherman Act (slide 2 and 2)

38-2a Per Se Violations versus the Rule of Reason

Factors Courts Consider under the Rule of Reason

Purpose of agreement

Parties’ ability to implement agreement to achieve purpose

Effect or potential effect of agreement on competition

Whether parties could have relied on less restrictive means to achieve purpose

Spotlight Case Example 38.1 Brantley v. NBC Universal, Inc. (2012)

38-2b Horizontal Restraints (slide 1 of 2)

Horizontal restraint: Any agreement that restrains competition between rival firms competing in the same market.

Price Fixing

An agreement among competitors to fix prices.

Classic Case Example 38.2 United States v. Socony-Vacuum Oil Co. (1940)

Group Boycotts

An agreement by two or more sellers to refuse to deal with a particular person or firm.

38-2b Horizontal Restraints (slide 2 of 2)

Market Divisions

It is a per se violation of Section 1 for competitors to divide up territories or customers.

Trade Associations

If a trade association practice or agreement that restrains trade is sufficiently beneficial both to the association and to the public, a court may deem the restraint reasonable.

Concentrated industries can occur when a single firm or a small number of firms control a large percentage of market sales. Courts may consider them in violation of Section 1 of the act.

38-2c Vertical Restraints (slide 1 of 2)

Vertical restraint: A restraint of trade created by an agreement between firms at different levels in the manufacturing and distribution process.

Territorial or Customer Restrictions

A firm may institute territorial restrictions or attempt to prohibit wholesalers or retailers from reselling the product to certain classes of buyers.

May Have Legitimate Purpose

38-2c Vertical Restraints (slide 2 of 2)

Territorial or Customer Restrictions

Judged under the Rule of Reason

Classic Case Example 38.5 Continental T.V., Inc. v. GTE Sylvania, Inc. (1977)

Resale Price Maintenance Agreements

An agreement between a manufacturer and a retailer in which the manufacturer specifies what the retail prices of its products must be.

Both maximum and minimum resale price maintenance agreements are judged under the rule of reason.

38-3 Section 2 of the Sherman Act

Predatory Pricing: The pricing of a product below cost with the intent to drive competitors out of the market.

38-3a Monopolization

The possession of monopoly power in the relevant market.

“The willful acquisition or maintenance of [that] power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

Defining Monopoly Power

38-3a Monopolization (slide 1 of 3)

Proving Monopoly Power

Direct evidence: Firm used its power to control prices and restrict output.

Indirect evidence: Firm has a dominant share of the relevant market and there are significant barriers for new competitors entering the market.

Case Example 38.6 Kolon Industries, Inc. v. E.J. DuPont de Nemours & Co. (2014)

38-3a Monopolization (slide 2 of 3)

Relevant Market

Relevant Product Market

Includes products that have identical attributes and reasonably interchangeable products.

Relevant Geographic Market

A region within which a firm can increase its price a bit without attracting new sellers or losing many customers to alternative suppliers outside that area.

38-3a Monopolization (slide 3 of 3)

The Intent Requirement

Unilateral Refusals to Deal

These violate Section 2 of the act only if (1) the firm refusing to deal has—or is likely to acquire—monopoly power and (2) the refusal is likely to have an anticompetitive effect on a particular market.

Case 38.1

McWane, Inc. v. Federal Trade Commission (2015)

How did McWane’s exclusivity policy harm competition? Explain.

38-3b Attempts to Monopolize

Elements of attempted monopolization

Anticompetitive conduct.

The specific intent to exclude competitors and garner monopoly power.

A “dangerous” probability of success in achieving monopoly power. The probability cannot be dangerous unless the alleged offender possesses some degree of market power. Only serious threats of monopolization are condemned as violations.

38-4 The Clayton Act (slide 1 of 2)

38-4a Section 2—Price Discrimination

Price discrimination: A seller’s act of charging competing buyers different prices for identical products or services.

Requirements

Seller must be engaged in interstate commerce.

The goods must be of like grade and quality.

The goods must have been sold to two or more purchasers.

38-4 The Clayton Act (slide 2 of 2)

38-4a Section 2—Price Discrimination

Defenses

Cost justification

Meeting competitor’s prices

Changing market conditions

State Laws Concerning Price Discrimination

38-4b Section 3—Exclusionary Practices

Exclusive-Dealing Contracts

Exclusive-dealing contract: An agreement under which a seller forbids a buyer to purchase products from the seller’s competitors.

Classic Case Example 38.10 Standard Oil Co. of California v. United States (1949)

Tying Arrangements

A seller’s act of conditioning the sale of a product or service on the buyer’s agreement to purchase another product or service from the seller.

Case Example 38.11 Batson v. Live Nation Entertainment, Inc. (2014)

38-4c Section 7—Mergers

Market Concentration: Degree to which small number of firms control large percentage of relevant market

Horizontal Mergers: Merger between two firms competing in same market

Vertical Mergers: Acquisition by a company at one stage of production of a company at a higher or lower stage of production

38-4d Section 8—Interlocking Directorates

38-5 Enforcement and Exemptions (slide 1 of 2)

38-5a Enforcement by Federal Agencies

The DOJ prosecutes violations (criminal or civil offenses) of the Sherman Act.

Clayton Act violations are not crimes, but the act can be enforced by either the DOJ or the FTC through civil proceedings.

38-5 Enforcement and Exemptions (slide 2 of 2)

38-5b Enforcement by Private Parties

The antitrust violation either caused or was a substantial factor in causing the injury that was suffered.

The unlawful actions of the accused party affected business activities of the plaintiff that were protected by the antitrust laws.

38-5c Exemptions from Antitrust Laws

Statutory or judicially created exemptions applying to specific areas such labor

38-6 U.S. Antitrust Laws in the Global Context

38-6a The Extraterritorial Application of U.S. Antitrust Laws

Any conspiracy that has a substantial effect on U.S. commerce is within the reach of the Sherman Act.

Case Example 38.13 Carrier Corp. v. Outokumpu Oyj (2012)

38-6b The Application of Foreign Antitrust Laws

European Union Enforcement

Increased Enforcement in Asia and Latin America

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