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monopoly.”
Woodrow Wilson
I. Teacher to Teacher Dialogue
however, the business trust was notoriously used as a device to eliminate competition and control
markets. In the late 1800s, it was common to have key commodities and the industries related to
those products controlled by large corporate enterprises. These entities would band together into a
form of common trust ownership. The trustee, in turn, was able to control the prices and
Antitrust Act. The act has two main objectives:
illegal joining together to restrain trade.
2. To control markets thought to have a monopoly, that is, illegal domination so strong
as to ipso facto restrain trade.
These objectives are set out in Sections 1 and 2 of the Act. What is interesting about this Act
is that Congress used very broad language to give the Justice Department maximum latitude in
The federal courts have taken a middle road. Under their rules of interpretation, two main
classifications of offenses have evolved. The Per Se Rule is used to strike down restraints that
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TRADE PRACTICES
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As strong and powerful a tool in the fight against monopolization and restraints of trade as
the Sherman Act is, it has proven to be only a partial remedy. The Sherman Act sets the basic
goals and objectives of keeping marketplaces open to competition. The Clayton Act and the
Federal Trade Commission Act are designed to provide tools of implementation to those basic
The biggest problem with the Clayton Act, and to a lesser extent with the FTC, is the
government’s commitment to enforcement combined with some very problematic aspects of the
statutes themselves. On the issue of governmental level of commitment to enforcement, there is
no question that things have changed in the global scheme of economic competition. In many
ways the market factors that were sought to be protected in the early part of the twentieth century
The second factor involves questions that have been raised about the economic sense of the
Clayton Act itself. Many critics of the Act have argued that although provisions like price
discrimination look good in theory, they are difficult to enforce. The reason these particular
II. Chapter Objectives
1. Describe the enforcement of federal antitrust laws.
Act.
3. Identify acts of monopolization that violate Section 2 of the Sherman Act.
4. Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act.
5. Apply Section 5 of the Federal Trade Commission Act to antitrust cases.
III. Key Question Checklist
What are antitrust acts designed to promote and protect?
What are the main provisions of the Sherman Act?
What are the main provisions of the Clayton Act?
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What subject matter do state antitrust acts cover?
IV. Text Materials
Introduction to Antitrust Law and Unfair Trade Practices
Congress enacted antitrust laws to limit anticompetitive behavior when a series of monopolies
Federal Antitrust Law
Antitrust statutes are broadly drafted, reflecting the government’s enforcement powers and
Landmark Law: Federal Antitrust Statutes
In 1890, Congress passed the Sherman Act, making restraints of trades and monopolies illegal. In
Government Actions – Government enforcement is divided between the Antitrust Division of
Private Actions – Private civil actions may be brought under Section 4 of the Clayton Act, and
Effect of a Government Judgment – The government judgment can be used as a prima facie
case of liability in a civil action. Antitrust defendants often enter a plea of nolo contendere in
Restraints of Trade: Section 1 of the Sherman Act
The Sherman Act, known as the “Magna Carta of free enterprise,” was passed to outlaw anti-
Critical Legal Thinking – Antitrust law appears to have been more vigorously enforced during
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Rule of Reason – Two tests have evolved for determining the legality of a restraint. The rule of
need be considered.
Horizontal Restraints of Trade – Horizontal restraint of trade occurs when two or more
Ethics: High-Tech Companies Settle Antitrust Charges
Three high tech firms agreed not to “raid” one another’s companies for high-tech labor talent.
This agreement was anti-competitive and illegal. The DOJ settled the case because it made its
Group Boycotts – When two or more competitors at the same level of distribution refuse to deal
with others at different levels of distribution, it is called a group boycott, which is per se illegal.
distribution will be scrutinized for reasonableness.
Vertical Restraints of Trade – This occurs when two or more parties on different levels of
distribution enter into a contract, combination, or conspiracy to restrain trade. The Supreme Court
has applied both the per se rule and the rule of reason in determining the illegality.
Sherman Act.
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Case 46.1 U.S. Supreme Court Contract, Combination, or Conspiracy: American Needle,
Inc. v. National Football League
560 U.S. 183, 130 S.Ct. 2201, 2010 U.S. Lexis 4166 (2010), Supreme Court of the United States
Facts: The National Football League (NFL) is an unincorporated association that includes thirty-
other memorabilia for all thirty-two NFL teams. American Needle sued the NFL, the teams, and
NFLP, alleging that the defendants engaged in an illegal contract, combination, or conspiracy, in
violation of Section 1 of the Sherman Act. The defendants argued that they were a single
economic enterprise and therefore incapable of the alleged conduct. The U.S. District Court held
football teams represented by the NFL compete with one another, not only on the playing field,
but to attract fans. Directly relevant to this case, the teams compete in the market for intellectual
property. Decisions by NFL teams to license their separately owned trademarks collectively and
to only one vendor are decisions that deprive the marketplace of independent centers of decision
intellectual property constitute concerted action.
Ethics Questions: Joint ventures have no immunity from antitrust laws. So the firms that enter
into a joint venture cannot avoid the reach of Section 1 of the Sherman Act.
Business Ethics: Students’ answers may vary. After granting nonexclusive licenses to a number
Unilateral Refusal to Deal – A firm can unilaterally decide not to deal with another firm and this
will not violate Section 1 of the Sherman Act.
conscious parallelism.
Noerr Doctrine – Two or more persons may petition the executive, legislative, or judicial branch
Monopolization: Section 2 of the Sherman Act
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Defining the Relevant Market – A relevant market includes substitute products or services that
can be considered relatively interchangeable. This also requires sales within a relevant
geographical market, which can be national, regional, state, or local markets, depending upon the
product.
Willful Act of Monopolizing – It is important to note that Section 2 outlaws the act of
monopolizing, not monopolies. An example of this violation is predatory pricing.
Attempts and Conspiracies to Monopolize – Both the attempt and conspiracy to monopolize
are punishable under law.
Defenses to Monopolization – Only two narrow defenses to a charge of monopolizing have been
recognized: (1) innocent acquisition of a monopoly and (2) natural monopoly.
Mergers: Section 7 of the Clayton Act
competition.
Line of Commerce – Determining the line of commerce that will be affected by a merger
involves defining the relevant product or service market. The courts will apply a functional
interchangeability test. The relevant line of commerce includes products and services that
Section of the Country – The courts will also look at the relevant section of the country and
review the geographical market involved, to determine if the direct and immediate effects of the
merger will be felt.
Horizontal Mergers – A horizontal merger is a merger between two or more companies that
compete in the same business and geographical market. Such mergers are subjected to strict
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market.
Vertical Mergers – Vertical mergers integrate the operations of both the supplier and the
customer, producing either backwards vertical mergers (with suppliers) or forwards vertical
mergers (with customers). In determining the legality of these actions, the court will consider
from buying or selling goods.
Market Extension Mergers – Market extension mergers are between two companies in similar
fields with non-overlapping sales. Geographical market extension mergers are mergers between
two companies in the same industry that serve the same geographical market; product market
Conglomerate Mergers – Conglomerate mergers are those that do not fit into any other
category, or those between two totally unrelated businesses. The unfair advantage theory keeps
acquiring firms from gaining an unfair advantage over its competition, so that the wealthy cannot
overwhelm the marketplace.
Premerger Notification – The Hart-Scott-Rodino Antitrust Improvement Act (HSR Act)
requires certain larger firms to notify the Federal Trade Commission (FTC) and the U.S.
Department of Justice of any proposed merger and to provide information about the parties and
the proposed transaction.
Tying Arrangements: Section 3 of the Clayton Act
Price Discrimination: Section 2 of the Clayton Act
Section 2(a) of the Robinson-Patman Act prohibits sellers from both direct and indirect price
discrimination when selling the same type and quality of goods, since this can affect competition
and may produce a monopoly.