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Antitrust Law Outline
I. Antitrust Injury :
3 types of Penalties: Sherman 1 + 2
- Criminal penalties (civil – private injunction also allowed, can be enjoined w/ crim) -exclusively enforced by the Federal Trade Commission AT Division
- Injunctions -can dissolve, cease/desist order/ require very detailed supervision
- Damages (Multiplied times 3) Overcharge: usually price you got over the competitive price/had to pay over it Deadweight Loss: Had to buy something else b/c of price raise (harder to show)
Determining Damages: 2 Step Process
- Antitrust Injury – must show you were injured in a way that stems from what AT trust laws are designed to prevent (Hurt Competition)
Brunswick v. Pueblo Bowl – o – Mat : -Harm b/c of competition isn’t AT injury -Harm must be connected to AT laws (Harmed competition...not b/c of competition) Injury: Reduction in competition -> proportional to injury
Cargill v. Monfort : Merger creating 20% of market into one entity -Alleging more competitive/efficient this is not an AT injury -Gotta show reasonable basis for fear that this will cause monopoly power (high % of market taken over by merger)
Atlantic Richfield v. USA Petro : -Keeping prices low isn’t Anti Trust or Predatory v. competitors
- Anti Trust Standing – Only if you first establish AT Injury -separate concept from the Injury -Are you the right plaintiff to sue? -Directness/Speculativeness
Illinois Brick Case : -Manufacturers (doing screwy stuff) -> Sold to contractors -> Sold to another -> sold to plaintiff Bid letters (Who sue Manus)
Court: They can’t sue up the chain Not Proximate Plaintiff -did suffer AT injury but not PROXIMATE PLAINTIFF -Contractors would be allowed to sue
Hanover Shoe Case : -Person who did AT Injury: Can’t use passing on injury as a defense if sued by correct -well you passed on injury – insufficient excuse
Standing Standards:
Rule: only direct purchasers can sue for overcharge -must sue person directly above you (Some state courts may go the other way on this)
Rule: can’t defend by saying they passed it on
II. Cartels : Horizontal Restraints -way for group of firms to act as “one” a monopoly basically
Price Fixing: Set price between competitors they agree to follow
Sherman Act Section 1 :
- Every K etc...
- In restraint of trade or commerce...(restricting competition)
- Development of Per Se Illegal and Rule of Reason Analysis :
Standard Oil v. US : -SC Case announced the Reason analysis -Is the restraint reasonable or an unreasonable restraint of trade? -Not automatically (PER SE) illegal b/c of that ( US v. Trans Mizzou Freight )
US v. Addyston Pipe and Steel : Not all are illegal -6th Circuit only* Initial Reasonableness Analysis: Lawful restraint: If in K the restraint is merely ancillary (A small by product)
- K has a main lawful/productive purpose aside from that restraint
- If in K the restraint is merely ancillary (A small by product)
- It is necessary to protect enjoyment of legit fruits or to protect from dangers
Chicago Board of Trade v. US : Price Fixing but a new practice -Must look deeper into whether restraint is suppressing competition too much
Consider Everything: -Intent to infer effect -Size of restraint (Geographic and Market) -What restraint is
US v. Trenton Potteries : Per Se Illegal -Purely fixing prices here -Retained power to fix prices (82% of market) -Won’t weigh reasonableness of prices
Appalachian Coal v. US : Rule of Reason -Coal producers create single entity to sell their coal -Not illegal -Had high percentage of regional mkt, but only 12% of US -Sold all over country so competing v. other markets -Not enough % for a cartel (12) *Probably no good today since during that time (1930’s) competition was deemphasized)
US v. Socony-Vacuum Oil :
-Gentleman’s Agreement to Buy up competing oil from Independent dealers in order to maintain prices (Very elaborate agreement), would limit production therefore driving up prices -No agreement to set prices -not fixing prices but hoping to hold a floor
- Characterization of Agreements :
Which one of the 5 categories does the case fall into? -After that determination then analyze within that framework.
Characterization: How you determine how to analyze an arrangement to determine if you should look deeper to determine legality of it
- Per Se Illegal: Anti Comp Effect assumed by arrangement – so obvious that it practically can’t do anything but cause anti comp effects (Facially totally illegal)
- Rule of Reason – Less Obvious: Shifts burden to defendant to justify the arrangement, Anti Comp effect assumed
- Rule of Reason – Still Less Obvious: No shift of burden until Plaintiff/Gov. proves Anti comp effect
- Rule of Reason: Ambiguous – can’t tell effect on competition either way -have to look at all the specific stuff -likely used with new practice which hasn’t got case law/history to back up the characterization
- Per Se legal: obviously not illegal or anti competitive
US v. Topco : Per Se Illegal Horizontal Restraint on Trade -Stores not allowed to sell TOPCO products outside of their territory -So different stores in a given territory won’t be competing against each other when selling TOPCO products -No other purpose but to restrict competition by limiting territory for chains to sell in -Court doesn’t look further at other factors
Palmer v. BRG of Georgia : Per Se Illegal -Used TOPCO reasoning -No other purpose but to restrict competition
Broadcast Music v. CBS :^ Rule of Reason^ – take everything into account -Music License Institutions ASCAP/BMI – is their forcing people to pay one price and buy all songs at once/right to use as much as they want illegal?
No Per Se: -Unique situation: Reasonably necessary arrangement -Not illegal price fixing (though it is price fixing) -Not exclusive license (CBS could negotiate w/ any individual artist)
Characterization:
- Intermediate Step
Rule of Reason Less Obvious : Can justify activity (Facial/Quick Look) (Burden shifts to defendant) National Society of Pro Engineers v. US : -agreement between engineers not to compete on price Competitive = lower all around quality b/c of prices
Justification: Low bids will cause less quality causing a risk to public health and safety Court: Justification is no good -Refuse to allow this group to impose its views on society and on the market -agreement assumes price level will be maintained
NCAA v. Board of Regents of the U. of Oklahoma : Defendant can justify -TV restrictions on schools
Two Issues:
- Not Per Se Illegal b/c of agreements restricting competition -Unique situation due to need to protect the integrity of college athletics
- Rule of Reason – not full (but Per Se Less Obvious) but focusing on the particular restraint -not full package (including #1 justification) -Output/Price Fixing – a naked restraint... -fewer games on tv, significantly higher prices
Justification: -Product wouldn’t exist w/o these measures (necessary)
Court: um no -Yeah it would...
- Proof of Agreements : No direct evidence of an agreement
Notes:
Mere conscious parallelism is not enough to infer an agreement. -Rational strategy to anticipate other firms moves -Rational to anticipate other firms doing same moves as you are -More is required
Concerted Action:
- Communication of intention AND
- Reliance with action taking place consistent with the agreement -Need direct or indirect evidence of a communication -To INFER an agreement
Eastern States Retail v. US :
Boycott Case: Lumber dealers form an association – to collect data -collect/list “offending” firms who are selling directly to customer and cutting out the retailers -circulated offenders names (retailers wouldn’t buy from offenders)
Agreement? -Yes to circulate the information -Abide by?: Can be inferred from consistent conduct (Illegal)
Interstate Circuit v. US : -First run theaters: Sent letters to distributors (named all addresses they were sending to) -said we won’t play your films unless you force by K 2nd run theaters to raise prices/not do double features
Court: Is an agreement -no agreement between individual distributors but enough b/c we have a “Hub and Spokes” central organizer -Enough to infer Horizontal Conspiracy by knowledge everyone got same proposal -Inferred this couldn’t happen w/o agreement even though no evidence they got together
Incentive to Joint Action :
Needed to show Illegal:
- Direct evidence OR
- Evidence of conduct which couldn’t be w/o Agreement
Bell Atlantic v. Twombly : -Are the Baby Bells conspiring against the CLECS (by agreement) -Specific Parallel Conduct
- Making it hard for CLECS to use their networks -ILECs want less competition...so they make it tough
- ILECS not entering each others territories -historic justification
Court: -Allegations of Parallel Conduct are not enough -Need a PLUS Factor to get past SJ: got to come up w/ some evidence showing possibility of an agreement -Prior to moving on to discovery stage...(Prevents unnecessary expensive discovery)
- Facilitating Practices :
A. Information Exchange Arrangements :
2 Main:
- Rivals agree via trade association to adopt facilitating practice -have agreement, Issue = Characterization and Competitive Effect
- Facilitating Practice Emerged in Market -No Ev. Of Agreement – seems to help them set prices *Harder case
2 Questions:
- Does conduct facilitate agreements/talks pricing agreements
- Parallel behavior adopting practice is strong evidence of agreement
Esco v. US :
Hypo: on concerted action w/o agreement -Statement of Intent -Followed by parallel action consistent with intent
American Column + Lumber v. US : Characterized – then did Rule of Reason
Hardwood Association – Clearinghouse of Open Information Members Report:
- daily sales/shipping reports – details price/lumber amounts/customer names
- monthly production reports/stock products
- price list each month + updated at price changes
Receive:
- Monthly summary of all members production
-easier to coordinate prices in future -prevents secret price cutting discounting
US v. Container Corp of America : Rule of Reason Inquiry: Illegal -Pure exchange of price information -ask from it from competitor and received it
Agreement: -not on price fixing but on agreeing to exchange price information -90% of SE US market for containers -Identical products so no variation in $ for production
Suspicious: -producing below capacity...but new firms entering market...prices are restricting output inference
Holding:
- The reciprocal exchange of price information was concerted action sufficient to establish the combination or conspiracy ingredient of § 1.
- The price stabilization which resulted from the exchange of price data had an anticompetitive effect in the corrugated container industry, chilling the vigor of price competition
Facilitating Review:
- If you have an agreement Per Se: Illegal if anti competitive R of R: Most are this, unless egregious
- No Agreement: but practice observed in market
-does presence of facilitating practice raise inference of agreement..can help -Verbal communication needed
