Antitrust law is a complex area of federal and state statutory law, the primary purpose of which is to prevent businesses from creating unjust monopolies or competing unfairly in the marketplace. Antitrust law seeks to maximize market efficiency and to protect consumers. Many specific actions are covered by these laws, including pricing policy, terms of trade, customer and territory selection, bundling of services, advertising and sales technology, and mergers and acquisitions. An experienced antitrust attorney who stays abreast of current developments in this area should be able to advise businesses on how to avoid antitrust problems.
A business has a monopoly in the market if it has such an advantage over all other businesses in that field that it is said to have economic control. The company with the monopoly may be the only manufacturer of a particular commodity, or it may provide a service in the community to virtually all consumers desiring the service. A natural monopoly is one over which the business has no control. The market may be so specialized, for example, that no other businesses have found it to be feasible to establish themselves in that area. A public utility is a good example of a natural monopoly. Natural monopolies are not illegal. It is illegal, though, for a business to conspire with others to drive its competitors out of business in order to create a monopoly.
Arrangements between competitors are called horizontal arrangements under antitrust law. Some of these arrangements run afoul of antitrust laws. Generally, the agreements businesses enter into are unlawful only if they are for the intentional purpose of restraining trade or gaining a monopoly in the market. Some agreements are per se illegal, however. A per se illegal relationship with a competitor is one in which no anti-competitive intention must be proved. The arrangement itself, no matter what the purpose, is against the law.
A collective refusal to deal, also called a group boycott, is a concerted decision by competitors not to do business with another business. Unlike a single company's boycott, or a boycott by consumers of a particular business, a group boycott is unlawful because it has the effect of restraining freedom of trade. Collective refusals to deal are per se violations of the antitrust laws; that is, even if the businesses do not intend to restrain competition, their group boycott violates antitrust law.
Obviously, a joint venture is not in and of itself an unlawful business action. However, depending on the parties involved, joint ventures sometimes violate antitrust laws. If a joint venture among several competitors in a market excludes others--especially if there are more businesses included in the joint venture than those excluded--there may be an antitrust violation. For example, if all photography equipment and processing companies in Houston form a joint venture, excluding two independent film processing stores, the participants in the joint venture probably are encroaching on unlawful business actions.
When competing businesses agree to divide up the market among themselves, they have engaged in market division. They may divide the market geographically, agreeing they will not enter the geographic area assigned to their competitors for the purpose of selling their products or services. They may divide the market by product, agreeing not to manufacture certain products so as to allow competitors to do so. If the purpose and effect of dividing the market is to limit competition among them, the businesses have engaged in an unlawful antitrust activity.
Horizontal price fixing is an agreement between competitors to set their prices at the same level or within the same range. For example, if the major airlines meet and agree to offer a particular price on round-trip tickets to Paris, they have fixed prices in contravention of the antitrust laws. Depending on the circumstances, price fixing may be per se illegal.
Tying occurs generally when a company requires buyers to purchase one product or service (called the "tied" product or service) in order to obtain another product or service (the "tying" product or service), and the arrangement restrains trade. Illegal tying is a per se violation of the antitrust laws. Three elements must be present to constitute an illegal tie-in per se:
Tying is an antitrust concern not because it restrains competition in the tying product, but because it restrains trade in the market for the tied product. Thus, for example, a computer system manufacturer that licensed a very popular computer operating system software only to buyers of its not-so-popular computer system was held to have violated antitrust laws by unlawful tying. The manufacturer had the leverage in the market to require some purchasers to buy something they did not really want. There was a demand in the market for purchase of the products separately.
Antitrust law prohibits some actions between businesses at different levels of the market. Agreements or actions between businesses and customers, between manufacturers and distributors, or between distributors and retailers, are called vertical arrangements. As a general rule, vertical arrangements are less likely than horizontal arrangements to violate antitrust laws.
Although companies generally are free to do business with whomever they choose, some antitrust laws put a limitation on this freedom. Exclusive dealing arrangements, like market divisions, are illegal if they have the effect of lessening competition. A company that manufactures beach wear may not enter into a contract to sell its products to a retailer on the condition that the retailer refuse to carry any other lines of beach wear. The retailer should be able to carry the products of competing businesses.
If it is intended to injure competition, or if it has that effect, discriminating in price is prohibited by antitrust law. Sellers are not allowed to charge two purchasers different prices for the same product, unless it is for a lawful purpose. For instance, a sale to dispose of damaged or perishable goods at reduced prices is not price discrimination in contravention of antitrust law. It would be unlawful, however, for a petroleum distributor to offer petroleum at a discount to a particular gas station but not to others.
Under some antitrust laws, a manufacturer requiring a distributor or retailer to sell its product at a set price is unlawful price fixing. Usually there must be a showing that the fixed resale price was required or compelled, such as through a distributor agreement. Merely suggesting a resale price is not unlawful.
Several federal laws govern most of the field of antitrust law in the United States.
The Sherman Anti-Trust Act is the basic federal antitrust statute. It prohibits businesses in interstate commerce from contracting, combining, or conspiring to restrain trade, or attempting to monopolize the market in a particular area of business. Violations of this Act include making contracts that unreasonably restrain trade, price fixing, group boycotts, allocating markets, and attempting to form and maintain a monopoly in an industry to injure competition. Persons found in violation of certain aspects of the Sherman Anti-Trust Act may be fined or jailed. In practice, however, these violations generally are handled by civil, rather than criminal, lawsuits. The Antitrust Division of the Department of Justice (DOJ) enforces the Sherman Act.
The other major federal antitrust law is the Clayton Act. This law specifically prohibits leases, sales, contracts for sale, or other conditions, agreements, or understandings that have the effect of substantially lessening competition or creating a monopoly in a line of commerce. Price fixing, price discrimination, tying, and exclusive dealing are covered by the Act.
Congress enacted an amendment to the Clayton Act specifically to strengthen prohibitions on price discrimination. This amendment, known as the Robinson-Patman Act, makes discrimination in price, services, or facilities unlawful for both sellers and buyers if it has a tendency to create a monopoly, to restrain competition, or to violate trade regulations. The Act seeks to assure that businesses are treated even-handedly by the suppliers of their products. It requires that buyers be given an equal opportunity to participate in certain types of seller programs relating to the resale, such as advertising and promotional programs, and that such benefits be disbursed to buyers on equal terms in proportion to their participation.
The Clayton Act also is enforced by the DOJ. The Federal Trade Commission (FTC) has co-jurisdiction with the DOJ to enforce this Act, although the DOJ has exclusive jurisdiction to enforce its criminal aspects. Also, each individual state is considered a "person" under the Act who can bring an antitrust action as an injured party or seek injunctive relief.
Deceptive statements or acts violate the Federal Trade Commission Act if they constitute unfair competition affecting commerce. To constitute a violation, there must be a material practice, representation, or omission likely to mislead reasonable consumers. People and businesses are proscribed from making false statements about their own products or the products of competitors, if the advertisements or statements have the effect of deceiving or tending to deceive consumers regarding a purchasing decision. The primary goal of this statute is to protect the public from anti-competition. There is no private right of action; the FTC represents the public in lawsuits to enforce this Act.
In addition to the federal laws that govern antitrust, Texas state law prohibits contracts or conspiracies that restrain trade and deceptive trade practices. Antitrust and deceptive trade practices laws are enforced by the Texas Attorney General's Office.
The Texas Free Enterprise and Antitrust Act of 1983 prohibits contracts, combinations, and conspiracies in restraint of trade or commerce. A violation of Texas' antitrust law occurs only when it is clearly shown that the defendant conspired with others to restrain trade. The Act contains sections analogous to the Sherman Act and is construed in accordance with federal law. In contrast to the federal antitrust law, Texas law prohibits contracts that restrain trade in commerce within Texas.
The Texas Free Enterprise and Antitrust Act specifically prohibits tying arrangements in restraint of trade. Exclusive dealing contracts specifically violate the Texas antitrust law, which is a stricter prohibition than the federal law. Thus, a business that enters into an exclusive dealing contract in Texas would violate Texas law.
The Texas Deceptive Trade Practices-Consumer Protection Act is analogous to the Federal Trade Commission Act. This statute makes false, deceptive, or misleading practices in the conduct of trade or commerce unlawful. The statute lists numerous acts that are considered false, misleading, and deceptive. Another section of the Texas law makes deceptive advertising a misdemeanor.
Texas cases have emphasized that an intentional misrepresentation is not required for this law to be violated. Any representation that is misleading is considered a deceptive trade practice under Texas law. For example, the following are specifically unlawful:
In an unfair competition claim in Texas, actual deception need not be proven; there must be a showing only that deception probably will result. For instance, in one Texas case, a seller of used restaurant equipment represented to a buyer that a particular oven was operational. When the oven was delivered, it was not working and its repair eventually cost the buyer close to $2000. The court noted that although the seller did not intentionally deceive the customer into a purchase through a misrepresentation, there was, nevertheless, a misrepresentation, and the defendant was not able to prove that the product possessed the characteristics it was represented to possess. Thus, there was a violation of the Texas law.
More than almost any other area of the law, antitrust is a broad and complex set of federal and state laws. Antitrust laws proscribe many specific business actions that, under slightly different circumstances, are within the realm of legal behavior. Nevertheless, a smart businessperson will create guidelines for the conduct of his or her business, so as to avert the possibility of any antitrust violations. An antitrust attorney can assist a business in instituting these guidelines, tailoring a policy specific to the particular area of commerce, and advising how to prevent antitrust liability in specific situations.
Antitrust liability is a serious concern for any business, large or small. As the old maxim goes, an ounce of prevention is worth a pound of cure. A business' top management should be familiar with basic antitrust policies and laws, and should articulate a commitment to avoid behavior that unreasonably restrains trade. This business goal should be stated in a written policy in which antitrust laws are described for employees, and managers should be educated about how the business must operate to avoid antitrust liability.
As a general rule, avoiding all contracts, conspiracies, and concerted action with competitors will ensure that a business stays clear of horizontal arrangements that violate antitrust laws. This means never discussing certain subjects with competitors, much less contracting with them regarding issues that could be construed as trade restraint or monopoly creation. Businesses should not agree with competitors over what prices to charge, for example, nor should they divide up a product or geographic market with competitors. In fact, keeping in mind the goal of antitrust law--to encourage competition--is helpful. A businessperson should adopt a business goal of competing vigorously with his or her competitors in the market.
Businesses should deal evenly with their distributors, franchisees, and customers, avoiding contracts or agreements that favor some members of a group over another or restrain their market behavior. Tying, for example, is almost never a good idea; a business should make its products available separately. Similarly, exclusive dealing is allowed under some circumstances, but conspiring with others to exclude a competitor or competitor's distributor from the market is unlawful. Again, a businessperson who remembers that healthy competition is the best way to avoid antitrust liability, and who refrains from putting unnatural restraints on trade, will most successfully stay within the bounds of antitrust law.
Additional information on antitrust law is available from the following sources:
The Regulatory Affairs section of the United States Department of Justice, Antitrust Division, Tenth Street & Constitution Avenue N.W. #3208, Washington, DC 20530, (202) 514-2410, is charged with regulating and enforcing federal antitrust law.
The Competition Bureau of the Federal Trade Commission, Sixth Street & Pennsylvania Avenue N.W., Washington, DC 20580, (202) 326-2565 answers general inquiries.
Contact the Texas Attorney General, Consumer Protection Division, P.O. Box 12548, Austin, TX 78711-2548, (512) 463-2070, for information on enforcement of antitrust and deceptive trade practices laws.