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Antitrust laws are designed to stop businesses and organizations from doing activities that harm trade and commerce. These activities can include monopolization and price fixing.
The antitrust laws originated in the 1800’s because of the proliferation of the “robber barons” in the United States. These were the men like Carnegie, Rockefeller, and J.P. Morgan who amassed great fortunes by having sole control over major industries like oil, railroads, and steel.
Today, the laws inspired by those robber barons are used to protect consumers and ensure that there is healthy competition taking place in interstate and foreign commerce. Antitrust laws are a compilation of several different congressional acts.
Below, we will discuss:
- The laws that make up antitrust laws;
- What constitutes an antitrust violation;
- Crimes related to antitrust violations;
- Possible penalties;
- Potential defenses to antitrust violations.
Our lawyers focus on federal white collar crimes, like antitrust violations, and various other government investigations. If you have been charged with, or are under investigation for, committing antitrust violations contact an experienced attorney.
Antitrust law is mainly comprised of 3 pieces of congressional legislation, the Sherman Antitrust Act, the Federal Trade Commission Act and the Clayton Antitrust Act.
The Sherman Antitrust Act was the first piece of legislation to outlaw the monopolization, or the attempt or conspiracy to monopolize, any business entity that takes place in interstate or foreign trade or commerce.
The Clayton Antitrust Act expanded the Sherman Act by giving it wider enforcement power and broadened the scope of activities considered to be a part of an antitrust violation.
Sherman Antitrust Act – 15 U.S.C. §§ 1 – 7
In the most basic sense, the Sherman Act makes illegal anti-competitive agreements and conduct that monopolize, or attempts to monopolize, a market. The act is very broad.
The Sherman Act was not meant to prohibit harm from legitimate business nor to prevent businesses from gaining honest profit. It was meant to ensure that the marketplaces stayed competitive and free of abuse.
The Sherman Act was modified, and made more applicable through the Clayton Act.
Federal Trade Commission Act (FTC Act) – 15 U.S.C. §§ 41-58
First and foremost, the FTC Act created the Federal Trade Commission.
In addition, the FTC Act makes illegal “unfair or deceptive acts or practices” and “unfair methods of competition.”
The Supreme Court of the United States also held that any act that is a violation of the Sherman Act is also a violation of the FTC Act. This means that the FTC may prosecute an antitrust crime under either statute.
Clayton Antitrust Act – 15 U.S.C. §§ 12 – 27
The Clayton Antitrust Act builds off of the foundation that the Sherman Act had laid.
The Clayton Act made specific conduct and actions that could work to nip antitrust action in the bud whereas the Sherman Act made the intended end result of those actions illegal.
These actions include:
Price discrimination – 15 U.S.C. § 13
Price discrimination is when a provider charges different prices for identical or very similar goods in different markets. The most common forms of price discrimination are when the seller places customers in groups based on certain attributes and charges each group a different price.
An example of price discrimination would be if a rubber distributor sold rubber to his white customers for a cheaper price then he did to his black customers even though it is the same quality product.
This act violates antitrust law if such discrimination would substantially lessen competition or has a tendency to create a monopoly.
Exclusive dealings – 15 U.S.C. § 14
Exclusive dealings are when two business, typically retailers and suppliers, have a deal to only purchase products from each other and no other business can sell or receive those supplies in an outlined area.
The exclusive dealing must substantially lessen competition.
An example of exclusive dealing would be a contract between a cloth supplier and a cloth store that stipulates that the cloth supplier can only sell to the cloth store and the cloth store can buy from the cloth supplier. This results in the inability of either to look for a better deal on the cloth and lessens competition in the cloth business.
Mergers and acquisitions that affect competition – 15 U.S.C. § 18
Mergers and acquisitions are perhaps the most well-known type of antitrust violation because it is the one that appears most often in the news. A merger is when two companies become, or attempt to become one. And acquisition is when one company takes over or buys all of the stock (essentially taking over) another company.
In order for either of these actions to be considered antitrust violations, they must “corner” a part of a market. This means that both companies operated in the same industry and the merger of them or the acquisition of one by the other would create a massive powerhouse company. A good example of this was the failed merger of phone companies AT&T and T-Mobile.
It failed because of a major requirement of the Clayton Act. The act requires companies to issue a pre-merger notice to the Federal Trade Commission (FTC). The FTC reviews the potential merger and decides violates antitrust laws. If the FTC believes it will, the merger cannot take place. If the FTC believes it will not, only then can the merger take place.
One person is the director of two or more competing businesses – 15 U.S.C. § 19
Any one person cannot serve as a director on the board of directors of two or more competing companies.
These companies must be involved in commerce. Serving on the board of directors for two competing banks does not violate this act. Further, the companies in question must be two that if they merged, they would violate antitrust laws.
The Clayton Act also sets forth enforcement rules that the Sherman Act does not include. For instance, the Clayton act empowers private parties that are injured by antitrust violations to sue for damages and can force defendants to divest their assets. Also, the Clayton Act exempts the acts of unions from being considered an antitrust violation.
Similar Crimes to Antitrust
The antitrust laws are sweeping and cover almost every crime that is related to the lessening of competition in a marketplace. There are not many “similar” crimes because of the broadness of the laws.
A list of related crimes includes:
- Money Laundering;
- Price Fixing;
- Bid Rigging.
Investigations and Enforcement
Antitrust law and antitrust cases are generally only applicable under a federal law jurisdiction though there is a very small percentage of cases brought under state law.
The federal agencies that investigate and enforce antitrust crimes and allegations include, but are not limited to:
- Antitrust Division of the Department of Justice (ATR-DOJ)
- Federal Trade Commission (FTC)
- State Attorney General’s Office
Potential Penalties for Committing Antitrust Violations
Sherman Antitrust Act
If convicted under the Sherman Act, individuals can be sentenced to up to 3 years in prison, fined up to $350,000, or both a fine and prison.
If convicted under the Sherman Act, individuals can be fined up to $10 million.
Clayton Antitrust Act
If convicted under the Clayton Act, individuals who are injured by violations of antitrust laws are able to sue the violators for up to 3 times the amount of damages that were suffered.
These damages may also be sought through class-action antitrust lawsuits.
Damages under both would include legal fees and other court costs.
Federal Trade Commission
The FTC may issue an order to any violator of antitrust laws, ordering them to stop their anti-competitive practices. This is otherwise known as divesting assets.
Potential Defenses to Charges of Antitrust Violations
Antitrust cases are hard to defend against by their nature. So, with mergers and acquisitions, the best defense is to argue how the merger would not weaken marketplace competition, but perpetuate it. The defense would also need to show that the merger would not harm consumers, as competition would continue to exist, and provide well-priced quality services.
If accused of price discrimination, a possible defense would be proving a reason for price discrepancy beyond lumping people into groups. A good example might be to state how fast food restaurants charge more in cities than they do in their suburbs. Then one could argue how to price discrepancy pricing does not affect competition.
This is a necessary element of the antitrust violation, and if it cannot be proven beyond a reasonable doubt by the prosecution, then you cannot be convicted.
Antitrust In the News
There are many examples of antitrust violations, failed mergers or acquisitions, and mergers or acquisitions that have been approved due to the antitrust laws.
These are a few examples of antitrust cases:
The breakup of the Bell System
Before 1982, there was a monopoly on the phone market in the United States – AT&T Corporation which was the controller of Bell Operating Companies. And in January 1982, an agreement split the Bell Operating companies into Regional Bell Operating Companies, who handled local phone calls and operated separately with AT&T still operating long distance calls.
This splitting into regional companies was the end result of a lawsuit filed by the United States DOJ in 1974. The lawsuit focused on AT&T’s almost sole control of telephone lines across the United States and their subsidiary, Western Electric, that made the majority of all telephonic equipment – making for a double layer of antitrust violations.
AT&T, feeling they were going to lose the lawsuit, proposed the divesting of their control of the regional phone companies, leaving them in control of Western Electric, long-distance phone lines, and Yellow Pages. They also asked for the rescission of a 1956 court order that barred them from creating computers.
AT&T’s proposal was accepted by the court, and its book value dropped 70 percent as a result. The most famous “baby bells” that was created as a result was NYNEX, which is now known as Verizon.
U.S. District Court Blocks EnergySolutions’ Acquisition of Waste Control Specialists
In June 2017, the District Court ruled in favor of the Department of Justice and blocked the proposed merger of EnergySolutions and Waste Control Specialists, both participants in the radioactive waste disposal marketplace.
The DOJ stated that the head to head competition between had resulted in lower prices and better disposal services for consumers. They argued that the merger of the two companies would result in not only less competition but would also hurt the consumers.
In addition, the DOJ argued that because the waste disposal industry is already so hard to enter, this merger would only stand to make it more difficult. This merger would not allow any new competition to enter the market.
CVS and Aetna Merger
In October 2018 CVS pharmacy and insurance provider Aetna’s merger received approval from the DOJ, with some conditions. The DOJ approved the deal with the condition that Aetna sells off its private Medicare drug plans.
This merger, along with the similar mergers of other healthcare giants like Express Scripts and Cigna, has left critics thinking that there will absolutely be less competition in the healthcare market though.
The DOJ has approved most of these similar mergers because they involve two distinct types of business. One side being pharmacies and the other being insurance providers.
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