Transcript Antitrust, Restraint of Trade, and Unfair Competition

NAVIGATING THE ANTITRUST RULES:
A MAP FOR THE CREDIT EXECUTIVE
WITHIN AND WITHOUT THE INTERNET
Wanda Borges, Esq.
Borges & Associates, LLC
575 Underhill Blvd.
Syosset, NY 11791
516-677-8200 x 225
[email protected]
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STATUTES THAT CONTROL
ANTITRUST ACTIVITIES

The Sherman Antitrust Act of 1890
 Prohibits
contracts, combinations and
conspiracies in restraint of trade in interstate
commerce or with foreign nations.
 Felony
to conspire to restrain trade; or to
monopolize (or attempt to monopolize).
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STATUTES (cont.)

The Clayton Act of 1914
 Passed
to “correct” defects in Sherman Act.
 Unlawful
to enter into any of several specified
types of prohibited transactions whose purpose
or effect would be to restrain trade or injure a
competitor.
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STATUTES (cont.)

The Robinson-Patman Act of 1936
 Partially
an amendment to The Clayton Act.
 Unlawful to “discriminate in price between
different purchasers of commodities of like
grade and quality”…
 …or knowingly to induce or receive a prohibited
discrimination in price.
 Liability could be civil or criminal.
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STATUTES (cont.)

The Federal Trade Commission Act
of 1914
 Broadest
of the antitrust statues;
includes:







mergers & acquisitions
unfair trade practices
unfair arrangements btw suppliers & dealers
deceptive sales approaches
discrimination in price, services or facilities
false advertising, and
any other practice to deceive the public.
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STATUTES (cont.)
●The Antitrust Procedure & Penalties Act
of 1976
● Gives Fed, govt. new disclosure powers.
● Permits a State attorney general to sue
for damages on behalf of a state’s citizens.
● Requires companies of a certain size to
file pre-merger notices.
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STATUTES (cont.)

State Antitrust Statutes

Almost every State has independent laws
prohibiting monopolies, contracts,
conspiracies and combinations in restraint of
trade.
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GOVERNANCE OVER
ANTITRUST VIOLATIONS
●
CIVIL ACTIONS
●
punitive damages
●
class action
●
State AG - injunctions & damages
●
Antitrust Division of US Dept. of
Justice
●
Federal Trade Commission (FTC)
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GOVERNANCE (CONT’D)
● CRIMINAL ACTION
● Antitrust Div. of the US Dept. of Justice
●
fines against businesses (<$100
million and individuals (<$1 million)
●
jail terms for individuals (<10 years)
●
Enforcement agencies:

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FCC for telecommunications entities.
Federal Reserve Board for banks.
FTC for all other matters.
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DEPARTMENT OF JUSTICE
ACTIVITY
● CRIMINAL ACTION
● Antitrust Div. of the US Dept. of Justice
●
fines against businesses and
individuals
●
jail terms for individuals.
●
Enforcement agencies:



FCC for telecommunications entities.
Federal Reserve Board for banks.
FTC for all other matters.
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DEPT. OF JUSTICE ACTIVITY
TRANSPORTATION
● PRICE FIXING
●
Air cargo carriers
●
international freight forwarders
●
water freight transportation
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RESTRAINT OF TRADE
(Unfair Competition, Price Fixing,
Group Boycott)
● “Restraint of trade” = unreasonable
 per
se unreasonable (did the incident
occur?); or
 in violation of the “rule of reason” (judged
by actual or potential effect on competitive
marketplace).
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RESTRAINT OF TRADE (CONT.)


“Combination / Conspiracy”--4 elements:
1. Knowledge
2. Common purpose
3. Actual restraint, not merely facilitating
4. Intent to restrain trade
“Conspiracy” = unity of purpose, common
design, meeting of minds re: unlawful purpose
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PRICE FIXING ISSUES
FOR CREDIT GRANTORS
● Discussion beyond a “mere
announcement”
● Agreement to maintain prices, with an
enforcement mechanism (mfr./distrs.)
● Agreement to fix or set payment terms
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CREDIT TERMS = PRICE
● Catalano Inc. v Target Sales
(Supreme Court 1980
“Extending interest-free credit for a period of
time is equivalent to giving a discount equal
to the value of the use of the purchase price
for that period of time. Thus, credit terms
must be characterized as an inseparable part
of the price”
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BID RIGGING

Bids manipulated so one competitor is
given an unfair advantage over others.

Caution: trading favors with a
competitor in one area or deal, in
exchange for reciprocal consideration
in a later situation
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GROUP BOYCOTTING

Concept of sufficient market power

Hallmarks of illegal group boycott:
1. Denial of access to a competitively useful
commodity or service
2. Collective refusal to deal

Group boycotting can exist even through action of
only one party
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INVOLUNTARY PETITION IN
BANKRUPTCY

CAN BE DEEMED A GROUP BOYCOTT

MUST NOT BE DISCUSSED BEFOREHAND
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INVOLUNTARY PETITION IN
BANKRUPTCY – PROPER STEPS

MAKE INDEPENDENT DECISION

GET COMPANY AUTHORIZATION

RETAIN ATTORNEY

SEEK OTHER CREDITOR(S)
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PRICE DISCRIMINATION

A single party can violate.

Robinson-Patman -- illegal to discriminate in
prices between different purchasers of like
goods, incl. credit and shipping terms

C.O.D. vs. Open credit can be deemed
discriminatory
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PRICE DISCRIMINATION

Different price to different purchasers of
commodities

Differences in terms and conditions of sale

Preferential credit terms
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PRICE DISCRIMINATION

Only applicable to sale of tangible goods

Not applicable to services or other intangible
items

NOT applicable to transportation since
transportation is not a commodity
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PREFERENTIAL CREDIT
or CREDIT DENIAL PERMITTED
in SPECIFIC INSTANCES

Legitimate business reasons

History of late payments

Financial difficulty

Superior credit records
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MEETING COMPETITION

Discriminatory price allowed when offered “in good
faith” to meet an equally low price of a competitor

Verify existence of competitor’s offer

Do not exceed competitors in size, duration or scope

Refuse to meet the competitor’s offer if illegal
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GOOD FAITH STANDARD

Reasonable belief the situation is of
competitive necessity

Belief that granting a lower price would meet
the lower price of a competitor

Substantial efforts must be made to verify
actual price
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DOCUMENTATION SUGGESTED

Date of competitor’s offer
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Name of competitor making offer
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Name of customer
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Terms and conditions of offer

Source of the Information & why you believe it
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LEGITIMATE BUSINESS REASON

Cost Justification

Market Conditions

Superior Credit History or Records
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PROMOTIONAL ALLOWANCES

Proportionally equal terms

Dollar volume or quantity purchased during
specific period of time

Equal rate per unit or amount purchased

Specified part or percentage of local
advertising
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GUIDELINES FOR
TRADE ASSOCIATION MEETINGS

Antitrust Compliance Statement.
Members should be reminded that the account discussions
about to take place will be conducted in accordance with
Federal Antitrust guidelines. Therefore, there can be no
discussions of any prices, terms, company policies or credit
lines. Remarks must be confined to present and completed
transactions only, with no mention of any future plans of
action. All of the information obtained from the Group is
strictly confidential and may not be disclosed to anyone other
than the members' own credit department.
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TRADE ASSOCIATION MEETINGS
(CONT’D)

Independent representative present

Written agenda followed

Minutes of all meetings maintained

No discussions outside the meeting
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NON-PERMISSIBLE DISCUSSIONS

Credit terms.

Production limits

Distribution and boycott
 Involuntary Petition in Bankruptcy
 Refusal to do business with certain customers

Price fixing (key phrases could be misconstrued).
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NON-PERMISSIBLE DISCUSSIONS

Allocation of customers

Dividing Territories

Bids

Geographic areas

Types of business
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PERMISSIBLE DISCUSSIONS

Delinquent account reports –NO discussion
of future (i.e., intent).

Exchange of factual credit information
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PERMISSIBLE ACTIVITIES
[when you get back to the office]

Credit Term Changes
 Credit
Record
 Review of customer’s financial information
 Your company’s position in the market
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PERMISSIBLE ACTIVITIES – cont’d
[when you get back to the office]

Refusal to deal with particular customer
 Must
be unilateral
 Must be independent decision
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ELECTRONIC CREDIT EXCHANGE

Antitrust Rules still apply
 Request
for references
 Giving references

Electronic data lasts forever
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ELECTRONIC CREDIT EXCHANGE

RECOMMENDED LANGUAGE ON
ELECTRONIC TRANSMISSIONS
This Credit Reference is provided at the request of
and is based upon information maintained in my filed
as a result of my company’s experience with ______.
No judgment or recommendation concerning credit
decisions is given or implied by this information. The
recipient must determine its own credit decision. The
data contained in this report is for information
purposes only.
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ELECTRONIC CREDIT EXCHANGE

REQUIRE AFFIRMATION IN ADVANCE
The credit information you are about to view
electronically is accurate information contained in my
records and you are requesting same in order to
determine the creditworthiness of ____________.
You may make one printed copy of this Electronic
Information for your own use. You may not
distribute, transmit or otherwise circulate the
Electronic Information to anyone else.
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ELECTRONIC CREDIT EXCHANGE

CREATE MANDATORY CONSENT

I have read and understand this Use Agreement
and Agreement to be bound by its terms

Lock mechanism to disable anyone from
proceeding without accepting restriction
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RECORD KEEPING

Records justifying cancellation of nonperforming agents

Credit reports on which decision was based
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