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C H A P T E R 1 6
ANTITRUST
In recent years corporate giants ADM and BASF AG have paid record fines for price-fixing.
Both the United States and EU authorities brought criminal actions against these firms under
antitrust laws. This chapter offers a general overview of the federal antitrust laws. The chapter
I. JURISDICTION REACH: INTERSTATE OR FOREIGN TRADE AND COMMERCE.
The Sherman Act only applies to fitrade or commerce” among the states or with foreign
II. AGREEMENTS IN RESTRAINT OF TRADE: SECTION 1 OF THE SHERMAN ACT. Courts
interpret § 1 to refer only to those restraints of trade that unreasonably restrict
competition. To make a prima facie case the plaintiff must prove: (1) there is a contract,
combination, or conspiracy among separate entities; (2) that unreasonably restrains trade;
(3) affects interstate commerce; and (4) causes an antitrust injury.
A. What Constitutes a Contract, Combination, or Conspiracy?
1. Proving a Horizontal Conspiracy. Plaintiffs need not show an overt
agreement.
CASE 16.1 Williamson Oil Co. v. Phillip Morris USA, 346 F.3d 1287
2. Proving a Vertical Conspiracy. Vertical agreements reduce intrabrand
B. What Constitutes an Unreasonable Restraint of Trade?
1. Per se Violations are practices completely void of competitive rationales.
The number of truly per se violations of the antitrust laws has declined.
C. Types of Horizontal Restraints.
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1. Horizontal Price-Fixing (per se violation of § 1)—agreement between
retailers: (a) to set a common price; (b) to set terms of sale; (c) to fix the
quantity or quality of goods to be manufactured or available for sale; or
(d) to rig bids.
D. Types of Vertical Restraints between firms at different levels in the chain of
distribution include: price-fixing, market division, tying arrangements, and some
franchise agreements.
1. Vertical Price-Fixing (may be per se violation of § 1) occurs through
CASE 16.2 Leegin Creative Leather Products, Inc., 127 S. Ct. 2705
(2007). Leegin Creative Leather Products sells a variety of
women’s fashion accessories under the brand name
fiBrighton,” in over 5,000 retail stores, mostly independent,
small boutiques and specialty stores. PSKS operated an
independent store that bought and sold Brighton goods
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2. Nonprice Vertical Restraints and Vertical Market Division are judged
under the rule of reason.
• Exclusive Distributorships. A manufacturer limits itself to a single
distributor in a given territory or, perhaps, line of business.
3. Product Bundling and Other Tying Arrangements (may be per se
violations of § 1) if: (a) the tying and tied products are separate products,
(b) the availability of the tied product is conditioned upon the purchase of
the tying product, (c) the party imposing the tie has market power (fithe
power to force a purchaser to do something that he would not do in a
CASE 16.3 Ilinois Tool Works, Inc. v. Independent, Inc., 547 U.S. 28
(2006). Trident, Inc. and its parent Illinois Tool Works,
Inc. (collectively, fiTrident”) manufacture industrial
printing systems that include a patented ink jet printhead
and ink container and unpatented ink. Trident sells its
systems to original equipment manufacturers (OEMs) that
are licensed by Trident to incorporate the printheads and
ink containers into printers that they sell to customers for
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use in printing bar codes on cartons and packages. The
license agreement requires the OEM to purchase ink
exclusively from Trident and further provides that neither
4. Franchise Agreements. Contract in which the franchisor (owner of the
franchise) grants to the franchisee the right to use the franchisor’s name
and logo and to distribute the franchisor’s products from a specified
locale.
III. MONOPOLIES: SECTION 2 OF THE SHERMAN ACT defines monopoly activity.
No agreement is required and unilateral action may violate Section 2.
A. Market Power (Monopoly Power) is the power to control prices or exclude
competition in a relevant market.
1. Defining Relevant Market. Markets have two components: a
product and location or geography.
• Multiple-Brand Product Market has product or service
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2. Determining Market Share. Once a relevant market is determined,
3. Barriers to Entry. Common barriers to entry include patents,
licenses, buyer preferences, up-front capital requirements, etc.
B. Monopolistic Intent. Once a prima facie case is proved, the defendant’s
intent may be relevant. Monopolistic intent can be proved by conduct.
1. Predatory Pricing is the attempt to eliminate rivals by undercutting
2. Exclusionary Conduct. The LePage’s, Inc. v 3M case held that
3. Refusal to Deal and the Essential Facilities Doctrine. Generally,
antitrust laws do not prevent a firm from deciding with whom it
will or will not deal. A monopolist has an essential duty to deal
4. Other Anticompetitive Acts include allocation of markets and
territories, price-fixing, fraudulently obtaining a patent, or
engaging in sham litigation.
C. Derivative Markets and Monopoly Leveraging. Through leveraging, a
firm with monopolistic power in one market can use that gain advantage in
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a separate market. When that advantage amounts to a monopoly power in
the second market.
CASE 16.4 John Doe 1 v. Abbott Laboratories, 571 F.3d 930 (9th Cir.
2009). Plaintiffs represented HIV patients and their
IV. PRICE DISCRIMINATION: THE ROBINSON–PATMAN ACT (SECTION 2 OF THE
CLAYTON ACT).
A. Elements of a Robinson-Patman Case: (1) Discrimination in price; (2) interstate
commerce; (3) sales for use, consumption, or resale within the United States; (4)
B. Defenses.
1. Not Actual Competitors.
2. Not Taking Advantage of Available Discounts. Robinson-Patman permits
discrimination when discounts are offered to all competing customers.
V. MERGERS: SECTION 7 OF THE CLAYTON ACT. If a merger or acquisition
unreasonably restrains trade, it violates Section 1 of the Sherman Act, and if it results in
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monopolization, it violates Section 2. But these statutes are rarely invoked to challenge
mergers.
A. Hart–Scott–Rodino Antitrust Improvements Act.
1. Jurisdictional Thresholds. The FTC and Justice Department have the right
to review the anticompetitive effects of the merger. Transactions less than
2. Filings and Waiting Period. Parties to merger must give notice to FTC and
B. Merger Guidelines. whether the merger will reduce competition; relevant
geographic and product markets; market shares; and the effect the merger will
have on the relevant market (Herfindahl-Hirshman Index).
C. Litigation under Section 7.
1. Horizontal Mergers. Combining of two or more companies at the same
level in the chain of production or distribution.
VI. UNFAIR METHODS OF COMPETITION: SECTION 5 OF THE FEDERAL TRADE
COMMISSION ACT. Congress granted the FTC authority to regulate unfair methods of
competition and deceptive practices.
VII. STATE-ACTION EXEMPTION. Over sixty-five years ago, the U.S. Supreme Court ruled
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VIII. ANTITRUST ENFORCEMENT. Both government-led and private suits are available.
A. Criminal Violations of the Sherman Act. FTC refers cases to the Department of
Justice. Corporations and individuals can be found in violation.
1. Amnesty. DOJ will provide amnesty to offenders who may have been
involved with criminal antitrust violations and who cooperate with the
Antitrust Division. Requires six conditions: 1. The Antitrust Division of
B. Civil Suits by Federal or State Governments. The Justice Department enforces
Sherman and Clayton acts in civil suits. Robinson-Patman violations are
prosecuted by the FTC. Private plaintiffs can recover treble damages.
C. Injunctive Relief and Damages for Violations of Section 7 of the Clayton Act, and
the Hart-Scott-Rodino Antitrust Improvements Act. Courts may order payments
of fines, restitution and a number of equitable remedies including: divestiture,
sell-offs, sharing of technology, etc.
D. Private Suits. Private ‘attorneys general’ can recover three times the damages they
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IX. THE EXTRATERRITORIAL REACH OF U.S. ANTITRUST LAW. The Sherman Act
applies to transactions within the United States.
A. Enforcement of the Sherman Act. Agencies take into account fiinternational
comity” (see Chapter 24). Factors include: (1) significance of conduct within
B. U.S. Control over Offshore Mergers and Others Consolidations. In 2002,
THE RESPONSIBLE MANAGER: TEACHING SUGGESTIONS
1. Discuss how legally astute manages avoid antitrust violations, using the following as
talking points:
• Not discuss products or pricing among competitors, trade and professional
associations,
• Not disseminate information that may result in market division or output restriction,
2. In the new globally economy, should extraterritorial application of United States antitrust
laws be abolished, or should it be adopted by our trading partners as part of an international
treaty?
3. From a global perspective, discuss antitrust laws in the European Union. The EU sets
rules on mergers and acquisitions in Articles 81 and 82 of the Treaty of Amsterdam. Article 81
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4. What are the differences between antitrust actions against Google versus Microsoft?