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Chapter 16 - Regulating Competition—Antitrust Laws
16-11
Emphasize:
The four types of sanctions recognized by the Sherman Act as amended by the Clayton
Act.
That the Sherman Act empowers courts to grant injunctions at the request of the
government or a private party that will prevent and restrain violations of its provisions.
Section 4 of the Clayton Act authorizes such victims in a civil action to collect three
times the damages they have suffered plus court costs and reasonable attorneys’ fees.
The concept of “nolo contendere.” Tie this plea to the treble damage remedy by
emphasizing that a guilty plea of finding in a criminal case is prima facie evidence of a
violation in a subsequent civil action for treble damages.
Figure 16.3—“Criminal Antitrust Fines (2003-2013)”
Cases for Discussion:
1. Monfort is the country’s fifth-largest beef packer. Excel Corporation (Excel), the
second-largest packer, is a wholly owned subsidiary of Cargill, Inc., a large privately
owned corporation with more than 150 subsidiaries in at least 35 countries. Excel signed
an agreement to acquire the third-largest packer in the market, Spencer Beef, a division
of the Land O’Lakes agricultural cooperative. Spencer Beef owned two integrated plants
and one slaughtering plant. After the acquisition, Excel would still be the second-largest
packer, but would command a market share almost equal to that of the largest packer,
IBP, Inc. (IBP). Monfort brought an action to enjoin the prospective merger. Its
complaint alleged that the acquisition would violate Section 7 of the Clayton Act
because the effect of the proposed acquisition may be substantially to lessen competition
or tend to create a monopoly in that it would impair Monfort’s ability to compete.
Issue: Is Monfort entitled to an injunction?
2. Brunswick is one of the two largest manufacturers of bowling equipment selling its
equipment to bowling centers on credit. When the bowling industry declined in the early
1960s, many bowling centers went into default. In order to combat its own financial
difficulty, Brunswick began acquiring and operating defaulting bowling centers.
Chapter 16 - Regulating Competition—Antitrust Laws
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if Brunswick had allowed the defaulting centers to close.
Issue: Do they state a valid claim for damages?
enacted to protect competition—not competitors. Brunswick Corp. v. Pueblo Bowl-O-
Mat, Inc., 97 S.Ct. 690 (1977).
3. Several states who were indirect purchasers of cement brought class action suits against
cement producers alleging a conspiracy to fix prices. Suit was based on state antitrust
laws which allow suit by indirect purchasers to recover overcharges passed on to them
by direct purchasers.
Issue: Are state antitrust statutes that permit indirect purchasers to recover overcharges
pre-empted by federal law?
Additional Matters for Discussion:
That an attorney may be individually liable under the antitrust laws if he exceeds his role
as a legal advisor and becomes an active participant in formulating policy decisions to
restrain competition.
The immunity granted municipalities under the Local Government Antitrust Act.
That the U.S. is now entitled to collect triple damages.
The Concept Summary on Antitrust Sanctions.
A. Exemptions (LO 16-5)
Emphasize:
That certain businesses may be exempt from the Sherman Act because of a statute or as
the result of a judicial decision.
That among activities and businesses for which there are statutory exemptions are
insurance companies; farmers’ cooperatives; shipping, milk marketing, and investment
companies.
That the state action exemption was created in the famous case of Parker v. Brown.
Chapter 16 - Regulating Competition—Antitrust Laws
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That the doctrine called Noerr-Pennington doctrine is based on the First Amendment.
Point out the importance of the free flow of information and the right to petition
government for a change in the law.
Sidebar 16.4—“Antitrust vs. Securities Laws”
Cases for Discussion:
hotel guests for in-room viewing. Several movie production studios sued PRE for
conspiracy that violated the antitrust law. The defendant moved for summary judgment
on the counterclaim since their infringement suit is exempt under Noerr-Pennington.
Issue: Is the infringement suit a sham that denies the studios the exemption from the
antitrust law?
Columbia Pictures, 113 S.Ct. 1920 (1993).
2. A group of lawyers who regularly acted as court-appointed counsel for indigent
defendants in District of Columbia criminal cases agreed to stop providing such
representation until the District increased their compensation. The boycott had a severe
impact on the District’s criminal justice system, and the District government capitulated
to the lawyers’ demands. After the lawyers returned to work, the Federal Trade
Commission (FTC) filed a complaint alleging a conspiracy to fix prices and to conduct a
boycott that constituted unfair methods of competition in violation of § 5 of the FTC
Act.
Issue: Are Noerr-Pennington and the First Amendment a defense?
3. The country’s largest producer of steel electrical conduit attempted to prevent the
Chapter 16 - Regulating Competition—Antitrust Laws
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Issue: Is this action exempt from the Sherman Act?
Indian Head, Inc., 108 S.Ct. 1931 (1988).
4. A surgeon alleged that a competing clinic’s physicians initiated and participated in peer
review proceedings to terminate his privileges in the city’s only hospital. He asserted
that the proceedings were brought to reduce competition rather than to improve patient
care.
Issue: State action exemption?
5. Rate bureaus representing common carriers in five southeastern states provided a forum
for carriers to discuss and agree on rates for intrastate transportation of commodities.
These rates were then proposed to the public service commissions for approval. The
U.S. instituted action to enjoin this activity.
Issue: Is the state action exemption applicable?
6. Government brought antitrust action against a nonprofit cooperative association whose
members were involved in production and marketing of broiler chickens. Certain
members of the association owned neither breeder flocks nor hatcheries and maintained
no grow-out facilities to raise flocks.
Issue: Are they exempt?
Chapter 16 - Regulating Competition—Antitrust Laws
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Held: No. Such members were not “farmers” under the Capper-Volstead Act, and thus
association was not entitled to the act’s limited protection from antitrust laws. National
Broiler Marketing Ass’n. v. United States, 98 S.Ct. 2122 (1978).
IV. The Clayton Act
A. Introduction (LO 16-6)
Emphasize:
That the provisions of the Clayton Act and its policy to stop anti-competitive practices
in their “incipiency” by making the Sherman Act more specific.
Violations of the original Clayton Act were not crimes, and the act contained no
sanction for forfeiture of property.
B. Price Discrimination
Emphasize:
The reasons why Section 2 of the Clayton Act was adopted and what it constituted.
That the Robinson-Patman Amendment was designed to eliminate illegal price
discrimination between large and small buyers.
That the amendment applies only to activities in interstate commerce.
The various levels of competition that may be involved.
That the prevalence of these practices led to the enactment of the Robinson-Patman
Amendment to Section 2.
The role of the Robinson-Patman Amendment.
The Robinson-Patman amendment made it illegal to sell at unreasonably low prices to
drive out a competitor. Discuss the reasons for outlawing such activities.
Figure 16.4—“Summary of antitrust analysis of pricing”
Cases for Discussion:
1. Texaco sold gasoline directly to 12 independent Texaco dealers at retail tank wagon
prices (RTW). It also sold gasoline to two wholesale distributors, Gull and Dompier,
2(a) of the Robinson-Patman Amendment. Texaco defended on the ground that the price
differential was a legitimate functional discount between wholesalers and retailers.
Chapter 16 - Regulating Competition—Antitrust Laws
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Issue: Is Texaco’s price differential justified as a functional discount?
hauling function, and neither wholesaler maintained significant storage facilities. The
evidence indicates that Texaco affirmatively encouraged Dompier to expand its retail
business and that Texaco was fully informed about the persistent and marketwide
consequences of its own pricing policies. Indeed, its own executives recognized that the
dramatic impact on the market was almost entirely attributable to the magnitude of the
distributor discount and the hauling allowance. Texaco Inc. v. Hasbrouck, 110 S.Ct.
2535 (1990).
2. The University of Alabama Medical School operates a pharmacy. Drug manufacturers
sold drugs to these pharmacies at lower prices than they sold the same drugs to other
pharmacies.
Issue: Is the sale of pharmaceutical products to state and local government hospitals for
resale in competition with private retail pharmacies exempt from the proscriptions of the
Robinson-Patman Act?
3. The plaintiff, a former automobile dealer, brought suit against the defendant automobile
manufacturer, alleging that the defendant’s “sales incentives” programs over a certain
period violated the Robinson-Patman amendment. Under these programs, Chrysler paid
a bonus to its dealers if they exceeded their sales quotas. The plaintiff alleged that its
quotas were higher than those of its competitors, that it ultimately received fewer
bonuses than did its competitors, and that the net effect was that it paid more for its
automobiles than did its competitors. It sought as damages the amount of the price
difference multiplied by the number of cars purchased.
Issue: Is the plaintiff entitled to “automatic damages” upon a showing of a substantial
price discrimination?
Chapter 16 - Regulating Competition—Antitrust Laws
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purchaser has been actually “injured” within the meaning of Section 4. A plaintiff must
prove more than a violation of Section 2(a). (The court remanded the case so that the
Court of Appeals could consider the sufficiency of the evidence of injury.) J. Truett
Payne Co. v. Chrysler, 102 S.Ct. 1923 (1981).
4. Standard Oil sold gasoline at a lower price to another oil company, which in turn sold it
to a wholesaler, who in turn sold it to a competitor of the plaintiff at a price that was still
lower than the price paid by the plaintiff for similar gasoline.
Issue: Is this type of price discrimination within the coverage of Robinson-Patman?
link in this particular distribution chain from the producer to the retailer. Perkins v.
Standard Oil Company of California, 89 S.Ct. 1871 (1969).
Additional Matters for Discussion:
The near impossibility of proving costs and the cost justification defense. (Review the
role of indirect costs in cost accounting.)
The definition of “good faith” and the reasons for the meeting of competition defense.
That the meeting of competition defense applies to buyers as well as sellers.
C. Special Arrangements
Emphasize:
The role of Section 3 of the Clayton Act.
A tying contract is one in which a product is sold or leased only on the condition that the
buyer or lessee purchase a different product or service from the seller or lessor.
That in addition to being addressed by the Clayton Act, courts have found tying
arrangements to violate section 1 of the Sherman Act.
Chapter 16 - Regulating Competition—Antitrust Laws
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That some tying agreements may be illegal per se. This occurs if coercion is involved or
if it results from the exercise of market power that is exploited.
Sidebar 16.5—“Tying Contacts, Patents, and Standard of Review”
Case for Discussion:
1. A hospital had a contract with a firm of anesthesiologists requiring all anesthesiological
services for the hospital’s patients to be performed by that firm. Because of this contract,
the plaintiff anesthesiologist’s application for admission to the hospital’s medical staff
was denied. The plaintiff sought an injunction. He claimed that the exclusive contract
was illegal because it forced the users of the hospital’s operating rooms (the tying
product) to purchase the hospital’s chosen anesthesiological services (the tied product)
and therefore constituted an illegal “per se” tying arrangement.
Issue: Is the arrangement by the hospital illegal?
Since patients are free to enter a competing hospital and to use another anesthesiologist
instead of the firm, no such forcing element is present in this case. Jefferson Parish
Hosp. Dist. No. 2 v. Hyde, 104 S.Ct. 1551 (1984).
D. Mergers and Acquisitions
Emphasize:
That Section 7 of the Clayton Act makes certain mergers and acquisitions illegal.
Specifically, a merger that will substantially lessen competition violates the law.
The ways in which one business may acquire another business and the technique in
which mergers and acquisitions are accomplished.
