Transcript Antitrust Legislation - Villanova University

Antitrust Legislation
Competition
Holds down prices and increases choices
Basic to faith that a free economy best promotes the
public weal is that goods must stand the cold test of
competition; that the public, acting through the
market’s impersonal judgment, shall allocate the
nation’s resources and thus direct the course its
economic development will take.
Times-Picayune Co. v. United States
345 U.S. 594 (1953)
Competition
More competitors means more competition

Many people believe that possession of an
unchallenged economic power deadens initiative,
discourages thrift, and depresses energy; that
immunity form competition is a narcotic, and rivalry is
a stimulant, to industrial progress; (and) that the spur
of constant stress is necessary to counteract an
inevitable disposition to let well enough alone. United
States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945
Chicago School
Chicago School Theories: (economic efficiency)
A. Laws should protect competition not competitors
B. Focus should be anti-conspiracy rather than anticompetition.
C Markets by their nature, tend toward efficiency and
market imperfections are generally transitory and
self-correcting
Post Chicago School
A. Markets are largely imperfect and not
self-correcting.
B. Firms can and do take advantage of
market imperfections.
C. Market imperfections (information
asymmetry) are pervasive and used to
exploit the market
Federal Antitrust Statutes
1. Sherman Anti-trust Act (1890)
2. Clayton Act
(1914)
3. Federal Trade Commission Act (1914)
4. Robinson-Patman Act (1936)
Sherman Antitrust Act

Section 1:
“Every contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade of
commerce among the several states, or with
foreign nations is declared to be illegal”
Requires an agreement, either express or implied
“Conscious parallelism”, standing alone is insufficient
Sherman Antitrust Act
Requires unreasonable restraint of trade
Tests applied:
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A. Per se violations – presumed to be unlawful
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B. Rule of Reason - Balances harm to
competition with justifications
Sherman Antitrust Act
Per se Violations
1. Horizontal Price-Fixing
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A. Direct agreements regulating price
B. Agreements to limit quantity

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Agreement by major oil refiners to purchase and store
excess production of small refiners to affect market price
by artificially limiting available supply
United States v. Socony-Vacuum Oil Co. 310 U.S. 150,
1940
Sherman Act
Vertical Price-Fixing
Resale price maintenance agreements -- an agreement
between a supplier and a dealer that fixes the minimum resale
price of a product -- is a clear-cut antitrust violation. It also is
illegal for a manufacturer and retailer to agree on a minimum
resale price.
The antitrust laws, however, give a manufacturer latitude to
adopt a policy regarding a desired level of resale prices and to
deal only with retailers who independently decide to follow that
policy or to stop dealing with a retailer who breaches the resale
price policy.
Sherman Act
Consignment Sales – Agreements whereby
retailer is agent.
Not covered by Sherman Act
Recent cases indicate such arrangements
may be illegal if the primary purpose is resale
price maintenance.
Sherman Act
Unilateral Refusals to Deal are not unlawful
(United States v. Cogate & Co.)
Lawful unless Manufacture enlists the aid of
dealers who are not price-cutting to help
enforce the pricing policy
Sherman Act
Horizontal Divisions of Markets
Agreements among competitors to divide sales territories or
allocate customers -- essentially, agreements not to compete -are presumed to be illegal.
Boycotts
A group boycott -- an agreement among competitors not to
deal with another person or business -- violates the law if it is
used to force another party to pay higher prices. Boycotts to
prevent a firm from entering a market or to disadvantage a
competitor also are illegal.
Sherman Act
Tie-in sales
The sale of one product on condition that a customer purchase a
second product,which the customer may not want or can buy
elsewhere at a lower price, is a tie-in. Requirements like these are
illegal if they harm competition. A
Exclusive dealing agreements
Requires buyers to buy exclusively from a particular seller
Sherman Act Penalties

Civil
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Injunctions
Treble damages plus court costs and attorney’s fees
Criminal
Fine – Individuals - Up to $350,000
Corporations – Up to $10 million per violation
Imprisonment – Up to 3 years
Clayton Act
Violations only require the showing of a
probability of a significant anticompetitive
effect in dealings involving commodities.
Primarily targets two behaviors
– Tying agreements
–
Exclusive dealing agreements
Tying Agreements
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Tying agreements that may “substantially
lessen competition or tend to create a
monopoly” are prohibited.

Most federal courts require essentially the same elements of
proof for a violation of the Sherman Act.
Tying Agreements

A challenged agreement most
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Involve two separate products,
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Sale of the tying product must be conditioned on an accompanying
sale of the tied product
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Seller must have sufficient economic power in the market for the
tying product
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Arrangement must restrain a not insubstantial amount of
commerce in the tied product market
Excusive Dealing Agreements

Agreement wherein the seller forbids a buyer
to purchase products from the seller’s
competition.
Robinson – Patman Act
Prohibits seller, in certain instances, form
discriminating in price between different purchasers
of commodities of like grade or quality if such sale
will substantially lessen competition to tend to create
a monopoly in any line of commerce or will injure or
destroy competition with any person who grants or
receives benefit or such discrimination,or with the
customers of either of them.
(1936, Robinson-Patman Act amended section
2 of the Clayton Act)
Robinson – Patman Act
[t]he major legislative purpose behind the
Robinson- Patman Act was to provide some
measure of protection to small independent
retailers and their independent suppliers from
what was thought to be unfair competition from
vertically integrated, multi-location chain stores.
Boise Cascade Corp., 107 F.T.C. 76, 210
(1986)
Robinson - Patman Act
Seller must have made two or more sales to
different purchasers at different prices of
commodities of equal quality.
Robinson - Patman Act
In order to bring the Act into play, there must
1.two or more consummated sales,
2.reasonably close in point of time,
3.of commodities,
4.of like grade and quality,
5.with a difference in price,
6.by the same seller,
7.to two or more different purchasers,
8.for use, consumption, or resale within the United States or any
territory thereof,
9.which may result in competitive injury.
Robinson - Patman Act
Act applies only to commodities; it does not apply to intangible
products.
Electricity has been classified as a commodity subject to the Act,
because
"[e]lectric power can be felt, if not touched. It is produced, sold, stored
in small quantities, transmitted, and distributed in discrete quantities."
(Metro Communications v. Ameritech Mobile Com., 984 F.2d at 745)
The Act does not apply to intangible products such as cellular telephone
service and cellular telephone activation service; the printing of comic
books; newspaper advertising; real estate leases; long distance voice
telecommunications services; and cable television service.
When a transaction involves both the sale of goods and the sale of
services, the
Robinson - Patman Act
The effect of the discrimination "may be substantially" to
1. lessen competition...in any line of commerce; or
2. tend to create a monopoly in any line of
commerce; or
3. injure, destroy, or prevent competition with any
person who grants or knowingly receives the
benefit of the discrimination, or with the
customers of either of them.
Injury
Two types of possible injury are most commonly
alleged:
Primary line injury
Injury is to competition between the seller granting the
discriminatory discount and other sellers
Secondary line injury
Injury to competition between the favored customer of the seller
who receives the discriminatory price and the seller's disfavored
customers.
DEFENSES
A. Cost Justification
B. Changing Conditions
C. Meeting Competition
D. Availability
E. Functional Discounts
Cost Justification
A.
Cost Justification –
Permits price differentials that do no more
that reflect differences in the cost of
manufacture, sale, or delivery resulting
from differing methods or quantity.
Changing Conditions
B. Changing Conditions
Different prices may reflect changing
conditions in the market or the marketability
of the goods
Perishable goods
Declining market for seasonal goods.
Meeting Competition
C. Meeting Competition
Discriminatory lower price may be lawful if price is
charged in good faith to meet an equally low price of a
competitor.
If a seller has a good reason to believe that competing firms
Are charging lower prices in a particular market, it may
respond with comparably low prices on a territorial basis [that
is, throughout the market], rather than on a customer-by
customer basis. Seller may reduce prices in order to secure
new customers, as well as to retain old ones.
Availability
D. Availability
Seller may offer two prices (a normal price
and a reduces price) if the reduced price is
realisticly available to all customers
Functional Discounts
E. Functional Discounts
Payments or reductions to customers for services
provided by the customer.
Indirect price discrimination

Provide discriminating services to competing
customers such as display cases or
demonstration kits

A Buyer who knowingly induces or receives
a discriminatory price violates the Act
Current Issues /Antitrust and
Intellectual Property
In recent decades, there has been increasing
recognition on the part of antitrust enforcers
and
the courts that intellectual property and antitrust
law share the common purpose of promoting
dynamic competition and thereby enhancing
consumer welfare.
Intellectual property / Antitrust law
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Intellectual property law provides incentives for
innovation and its dissemination and
commercialization by establishing enforceable
property rights in new products and processes and
original works of expression.
Antitrust law promotes dynamic competition and
consumer welfare by prohibiting certain conduct by
market participants that unreasonably constrains the
competitive process.
Issues

bundling of intellectual property rights
through means such as package licensing.

grant backs, which require a licensee to
grant back to the licensor a right to use the
licensee's patented improvements to the
licensor's invention, can also have
procompetitive effects, but can adversely
affect competition in some instances
Refusal to license patents and copyright
Licensing agreements that are conditioned on
other actions, such as dealing exclusively
with the patentee, cross-licensing another
patent, or purchasing other products.
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Patent pooling
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Standard setting
The standard setting process generally requires that
competitors come together to coordinate on a
technological standard. In such a setting, there are
opportunities for anticompetitive behavior as
companies exert their influence over the process.
After a standard has been established, there are
many issues regarding access to the technology
embodied in the standard; limited access could
restrict the number of competitors in a market and
International
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What "exceptional circumstances" may justify
compulsory access to intellectual property?
World Trade Organization
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The Agreement on Trade-Related Aspects of
Intellectual Property Rights ("TRIPs"),
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TRIPs, authorizes Member countries to legislate exceptions
to the rights of legitimate patents.
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Article 7 lists the objective of TRIPs is to protect and enforce
intellectual property rights so as to promote technological
innovation, and to share information to the collective benefit
of both producers and users. The sharing and promotion of
technological innovation should be done in a manner
conducive to social and economic welfare while providing
an equal balance of rights and obligations.

8(1) "Members may, in formulating or
amending their national laws and regulations,
adopt measures necessary to protect public
health and nutrition, and to promote the
public interest in sectors of vital importance
to their socio-economic and technological
development, provided such measures are
consistent with the provisions of this
Agreement.