Clarkson14e - PPT - ch46 Antitrust

BUSINESS LAW
TEXT AND CASES

Fourteenth Edition
CLARKSON MILLER CROSS  
CHAPTER 46: ANTITRUST LAW

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
§1: THE SHERMAN ANTITRUST ACT (1
OF 7)
 The laws regulating economic competition

in the United States today are referred to as
antitrust laws.
 Antitrust legislation began when Congress
passed the Interstate Commerce Act in

1887, followed by the Sherman Antitrust Act
in 1890. In 1914, Congress passed the
Clayton Act and the Federal Trade
Commission Act.  2
THE SHERMAN ANTITRUST ACT (2 OF 7)
 Major Provisions of the Sherman Act:
Every contract, combination in the
form of trust or otherwise, or
conspiracy, in restraint of trade or
commerce among the several States, or
with foreign nations, is hereby declared
to be illegal [and a felony punishable
by fine and/or prison]. 
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3
 Major Provisions of the Sherman Act:
Every person who monopolizes, or
attempts to monopolize, or combine or
conspire with any other person or
persons, to monopolize any part of the
trade or commerce among the several
States, or with foreign nations, shall be
deemed guilty of a felony.
 Differences between Section 1 and Section 2:
Section 1 requires two or more persons and
the essence of the illegal activity is the act of
joining together.
Section 2 can apply either to one person or to
two or more persons because it refers to
“every person.” Thus, unilateral conduct can
result in a violation of Section 2. 
Section 1 cases are often concerned with
whether an agreement (written or oral) leads
to a restraint of trade.
Section 2 cases deal with the structure of a
monopoly that exists in the marketplace.
A monopoly generally describes a market in
which there is a single seller or a very limited
number of sellers.  6
Section 2 looks at the so-called misuse of
monopoly power in the marketplace.
Both Section 1 and Section 2 seek to curtail
practices that result in undesired monopoly
pricing and output behavior.
For a case to be brought under Section 2, the
“threshold” or “necessary” amount of
monopoly power must already exist. 7
 Jurisdictional Requirements:
The act applies to any activity that
substantially impacts interstate commerce.
It also extends to U.S. nationals working
abroad who are engaged in activities that
have an effect on U.S. foreign commerce.
Federal courts have exclusive jurisdiction
over antitrust cases brought under the act.
§2: SECTION 1 OF THE
SHERMAN ACT (1 OF 21)
 The types of trade restraints that Section 1
generally prohibits are horizontal restraints
and vertical restraints.
 Per se Violations versus the Rule of Reason:
Per se violations are blatant and

substantially anticompetitive.
Rule of reason agreements do not
unreasonably restrain trade. 
SECTION 1 OF THE
Rationale for the Rule of Reason: Without
the rule of reason, almost any business
agreement could conceivably be held to
violate the Sherman Act.
Factors That Courts Consider: When
analyzing an alleged Section 1 violation
under the rule of reason, a court will
consider the following factors:  10
SECTION 1 OF THE
 Factors That Courts Consider:
• The purpose of the agreement.
• The parties’ ability to implement the
agreement to achieve that purpose.
• The effect or potential effect of the
agreement on competition.
• Whether the parties could have relied on less
restrictive means to achieve their purpose.
11
SECTION 1 OF THE
 Horizontal Restraints: A horizontal
restraint is any agreement that in some
way restrains competition between rival
firms competing in the same market. 
SECTION 1 OF THE
 Horizontal Restraints: Horizontal restraints
may include price-fixing, group boycotts,
market divisions, and trade associations.
Price Fixing: Any price-fixing agreement—
an agreement among competitors to fix
prices—constitutes a per se violation of
Section 1. If the agreement restricts output
or artificially fixes price, it violates the law.
SECTION 1 OF THE
 Horizontal Restraints:
Price Fixing:
• The Reason Behind the Agreement Is Not
a Defense: A price-fixing agreement is
always a violation of Section 1, even if
there are good reasons behind it. 
SECTION 1 OF THE
 Price Fixing:
• Price-Fixing Cartels Today: Price-fixing
cartels (groups) are still common and the
U.S. government actively pursues companies
that may be involved in them. International
price-fixing cartels have been alleged in
numerous industries including auto parts,
digital commerce, and drug manufacturers.
SECTION 1 OF THE
 Group Boycotts: A group boycott is an
agreement by two or more sellers to refuse to
deal with (or boycott) a certain person or firm.
Since they involve concerted action, group
boycotts have been held to constitute per
se violations of Section 1 of the Sherman Act.
SECTION 1 OF THE
 Horizontal Market Division: It is a per se
violation of Section 1 for competitors to divide
up territories or customers.
 Trade Associations: Trade associations may
engage in various joint activities such as
exchanging information and representing the
members’ business interests before
governmental bodies. 
SECTION 1 OF THE
Trade Associations: Generally, the rule of
reason is applied to many of these
horizontal actions. If a court finds that a
trade association practice or agreement
that restrains trade is sufficiently
beneficial to the association and to the
public, it may deem the restraint
reasonable.  18
SECTION 1 OF THE
Trade Associations: A concentrated
industry is one in which either a single firm
or a small number of firms controls a large
percentage of market sales. When trade
association agreements have substantially
anticompetitive effects, a court will
consider them to be in violation of Section
1 of the Sherman Act. 19
SECTION 1 OF THE
 Joint Ventures: If a joint venture does not
involve price fixing or market divisions, the
agreement will be analyzed under the rule of
reason. Whether the joint undertaking
violates Section 1 depends on the venture’s
purpose, potential benefits relative to likely
harms, and whether there are less restrictive
alternatives for achieving the same goals. 
SECTION 1 OF THE
 Vertical Restraints: A vertical
restraint of trade results from an
agreement between firms at
different levels in the
manufacturing and distribution
process. Unlike horizontal
relationships, vertical
relationships encompass the
entire chain of production.
SECTION 1 OF THE
 Vertical Restraints:
For some products, the distinct
production phases are carried on by
different firms.
In other instances, a single firm carries
out two or more of the separate
functional phases. Such enterprises are
called vertically integrated firms. 
SECTION 1 OF THE
Agreements between firms standing in a
vertical relationship may affect
competition.
Some vertical restraints are per se
violations of Section 1, while others are
judged under the rule of reason. 
SECTION 1 OF THE
Territorial or Customer Restrictions:
Imposed by manufacturers on the sellers
of the products, to insulate dealers from
direct competition with each other.
These are judged under the rule of
reason. 
SECTION 1 OF THE
• May Have Legitimate Purpose: A firm
may have legitimate reasons for
imposing territorial or customer
restrictions such as preventing a dealer
from reducing costs and undercutting a
rival by offering its products without
promotion or customer service. 25
SECTION 1 OF THE
• Judged under the Rule of Reason: Territorial
and customer restrictions were once
considered per se violations of Section 1.10.
In 1977, the U.S. Supreme Court held that
they should be judged under the rule of
reason in Continental T.V., Inc. v. GTE
Sylvania, Inc. 
SECTION 1 OF THE
• Judged under the Rule of Reason: The
court’s decision marked a definite shift to
a more flexible, economic analysis of
these vertical restraints under the rule of
reason. This rule is still applied in most
vertical restraint cases.
SECTION 1 OF THE
 Resale Price Maintenance Agreement: An
agreement between a manufacturer and a
distributor or retailer in which the
manufacturer specifies the retail price at
which retailers must sell the manufacturer’s
products. Both maximum resale price
maintenance agreements and minimum resale
price maintenance agreements are judged
under the rule of reason.  28
SECTION 1 OF THE
Resale Price Maintenance Agreements:
• Setting a maximum price that can be
charged for a manufacturer’s products
may sometimes increase competition and
benefit consumers.
 SEE LEEGIN CREATIVE LEATHER PRODUCTS, INC. V.
PSKS, INC. (2007).
§3: SECTION 2 OF THE
 Section 2 of the Sherman Antitrust Act
condemns “every person who shall
monopolize, or attempt to monopolize.”
 Two distinct types of behavior are subject
to sanction under Section 2: monopolization

and attempts to monopolize. 
SECTION 2 OF THE
 Predatory pricing occurs when one firm (the
predator) attempts to drive its competitors
from the market by selling its product at
prices substantially below the normal costs
of production.
 Once competitors are eliminated, the
predator presumably will raise its prices far
above their competitive levels to recapture
its losses and earn higher profits. 31
SECTION 2 OF THE
 Monopolization: The U.S. Supreme Court has
defined monopolization as involving (1) the
possession of monopoly power in the relevant
market and (2) “the willful acquisition or
maintenance of the power as distinguished
from growth or development as a
consequence of a superior product, business
acumen, or historic accident.” 
SECTION 2 OF THE
 Monopolization:
Defining Monopoly Power: The Sherman Act
does not define monopoly. In economic
theory, monopoly refers to control of a
specific market by a single entity.
Proving Monopoly Power: Monopoly power
can be proved by direct evidence that the
firm used its power to control prices and
restrict output. 
SECTION 2 OF THE
 Monopolization:
 Proving Monopoly Power: Since there is
usually not enough evidence to show
intentional price control, the plaintiff must
offer indirect, or circumstantial, evidence of
monopoly power such as the firm’s dominate
share in a market and significant barriers for
new competitors in that market.
• SEE CASE IN POINT 46.7 E.I. DUPONT DE
NEMOURS AND CO. V. KOLON INDUSTRIES (2011).
34
SECTION 2 OF THE
 Monopolization:
Relevant Market: Must be determined
by a court before it can determine
whether firm has dominant market
share. The relevant market has two
elements:
 Relevant product market.
 Relevant geographic market.
SECTION 2 OF THE
 Monopolization:
 Relevant Market:
• Relevant Product Market: The relevant
product market includes all products that
have identical attributes (such as all brands of
tea) as well as products that are reasonably
interchangeable with them. Products
reasonably interchangeable if consumers
treat them as acceptable substitutes. 
SECTION 2 OF THE
 Monopolization:
Relevant Market:
• Relevant Geographic Market: The second
component of the relevant market is the
geographic extent of the market in which
the firm and its competitors sell the
product or services. 
SECTION 2 OF THE
 Monopolization:
Relevant Market:
• Relevant Geographic Market: Generally,
the geographic market is that section of
the country within which a firm can
increase its price a bit without attracting
new sellers or losing many customers to
alternative suppliers outside that area.
SECTION 2 OF THE
 Monopolization:
The Intent Requirement: Monopoly
power, in and of itself, does not
constitute the offense of monopolization
under Section 2 of the Sherman Act. The
offense also requires an intent to
monopolize. 
SECTION 2 OF THE
 Monopolization:
The Intent Requirement: A dominant
market share may be the result of good
business judgment, the development of a
superior product, or simply the result of a
historical accident.
• In these situations, the acquisition of
monopoly power is not an antitrust
violation. 40
SECTION 2 OF THE
 Monopolization:
 Unilateral Refusals to Deal: A single
manufacturer acting unilaterally is normally
free to deal (or not to deal) with whomever it
wishes. However, a unilateral refusal to deal
will violate Section 2 if (1) the firm refusing to
deal has—or is likely to acquire—monopoly
power and (2) the refusal is likely to have an
anticompetitive effect on a particular market.
SECTION 2 OF THE
 Attempts to Monopolize: Section 2 prohibits
attempted monopolization of a market, which
requires proof of the following elements:
Anticompetitive conduct.
The specific intent to exclude competitors
and garner monopoly power.
A “dangerous” probability of success in
achieving monopoly power.
SECTION 2 OF THE
 Attempts to Monopolize:
Related to predatory pricing is predatory
bidding, which involves the acquisition and
use of monopsony power (market power on
the buy side of a market).
Predatory bidding occurs when a buyer bids
up the price of an input too high for its
competitors to pay, causing them to leave
the market.  43
SECTION 2 OF THE
 Attempts to Monopolize:
The predatory bidder then attempts to drive
down input prices to reap above-
competitive profits and recoup any losses it
suffered in bidding up the input prices.
§4: THE CLAYTON ACT (1 OF 13)
 The Clayton Act was aimed at specific
anticompetitive or monopolistic practices that
the Sherman Act did not cover. Sections 2, 3, 7,
and 8 of the act deal with four distinct forms of
business behavior that are declared illegal but
not criminal.
 For each provision, the act states that the
behavior is illegal only if it tends to substantially
lessen competition or to create monopoly power.
THE CLAYTON ACT (2 OF 13)
 Section 2—Price Discrimination: Price
discrimination is the charging of different prices
to competing buyers for identical goods.
 Requirements: To violate Section 2, the seller
must be engaged in interstate commerce, the
goods must be of like grade and quality, and
the goods must have been sold to two or more
purchasers. The price discrimination must be to
substantially lessen competition, to create a
monopoly, or to injure competition.  46
 Section 2—Price Discrimination:
Requirements: Price discrimination claims
can arise from discounts, offsets, rebates,
allowances, favorable credit terms, delivery,
or freight charges given to one buyer over
another. 
Defenses:
• Cost justification. If the seller can justify
the price reduction by demonstrating that
a certain buyer’s purchases saved the
seller costs in producing and selling the
goods, the seller will not be liable for
price discrimination. 
Defenses:
• Meeting a competitor’s prices. If the seller
charged the lower price in a good faith
attempt to meet an equally low price of a
competitor, the seller will not be liable for
price discrimination. 
Defenses:
• Changing market conditions. A seller may
lower its price on an item in response to
changing conditions affecting the market
for or the marketability of the goods
concerned.
 Section 3—Exclusionary Practices: Under Section
3, sellers or lessors cannot condition the sale or
lease of goods on the buyer’s or lessee’s promise
not to use or deal in the goods of the seller’s
competitor.
 Exclusive-Dealing Contracts: Sellers are
prohibited from forbidding buyers to purchase
products from the seller’s competitors if the
effect of that will “substantially lessen
competition or tend to create a monopoly.”  51
 Section 3—Exclusionary Practices:
Tying Arrangements: The conditioning of
the sale of a product on the buyer’s
agreement to purchase another product
produced or distributed by the same seller.
The legality of a tying arrangement (or tie-
in sales agreement) depends on several
factors.
 Section 7—Mergers: Under Section 7, a person
or business organization cannot hold stock or
assets in more than one business when “the
effect … may be to substantially lessen
competition.” Section 7 applies to horizontal
and vertical mergers and is the statutory
authority for preventing mergers or acquisitions
that could result in monopoly power or a
substantial lessening of competition in the
marketplace.  53
 Section 7—Mergers:
A crucial consideration in most merger cases
is market concentration.
Courts will consider other factors in
determining if a merger violates Section 7
such as whether the merger will make it
more difficult for potential competitors to
enter the relevant market. 
Horizontal Mergers: Occur between firms
at the same level in the production and
distribution chain. The Federal Trade
Commission (FTC) and the U.S.
Department of Justice (DOJ) have
established guidelines for determining
which mergers will be challenged. 
Vertical Mergers: Occur when a company at
one stage of production acquires a company
at a higher or lower stage of production.
Whether a vertical merger is illegal generally
depends on several factors. If a merger does
not prevent competitors of either merging
firm from competing in a segment of the
market, the merger will be legal.
 Section 8—Interlocking Directorates:
No person may be a director for two or
more competing corporations at the same
time if either of the corporations has
capital, surplus, or undivided profits
aggregating more than $31,841,000 or
competitive sales of $3,184,100 or more
(per the FTC’s 2016 thresholds).
§5: ENFORCEMENT AND
EXEMPTIONS (1 OF 5)
 The federal agencies that enforce the federal
antitrust laws are the DOJ and the FTC, which
was established by the Federal Trade
Commission Act.
 Section 5 of that act condemns all forms of
anticompetitive behavior that are not covered

under other federal antitrust laws.
ENFORCEMENT AND
EXEMPTIONS (2 OF 5)
 Agency Actions:
Only the DOJ can prosecute violations of the
Sherman Act, whether criminal or civil.
Either the DOJ or FTC can enforce the
Clayton Act.
The DOJ or the FTC may ask the courts to
impose various remedies, including
divestiture (making a company give up one
or more of its operations) and dissolution.
59
ENFORCEMENT AND
EXEMPTIONS (3 OF 5)
 Agency Actions:
The FTC has sole authority to enforce
violations of Section 5 of the FTCA.
Private Actions: A private party who has
been injured from a violation of the Sherman
Act or the Clayton Act can sue for treble
damages and attorneys’ fees. Private parties
may also seek injunctive relief to prevent
antitrust violations. 
ENFORCEMENT AND
EXEMPTIONS (4 OF 5)
 Agency Actions:
Private Actions: A party wishing to sue under
the Sherman Act must prove that:
• The antitrust violation either caused or was
a substantial factor in causing the injury that
was suffered.
• Unlawful actions of the accused party
affected business activities of the plaintiff
that were protected by the antitrust laws.
ENFORCEMENT AND
EXEMPTIONS (5 OF 5)
 Agency Actions:
Exemptions from Antitrust Laws:
• Most of the statutory and judicially
created exemptions to the antitrust laws
apply only in certain areas.
• One of the most significant is joint
efforts to obtain legislative, judicial, or
executive action.
§6: U.S. ANTITRUST LAWS IN
THE GLOBAL CONTEXT (1 OF 5)
 Extraterritorial Application of U.S. Antitrust
Laws: Any foreign business conspiracy that
has a substantial effect on U.S. commerce is
within reach of the Sherman Act. U.S. courts
will exercise jurisdiction after it is shown that
the alleged violation had a substantial effect
on U.S. commerce. 
U.S. ANTITRUST LAWS IN
 Extraterritorial Application of U.S. Antitrust
Laws: U.S. jurisdiction is automatically
invoked when a per se violation occurs.
 SEE CASE IN POINT 46.14 CARRIER CORP.
OUTOKUMPU OYJ (2013).
 Application of Foreign Antitrust Laws: U.S.
firms may be subject to antitrust laws of
other nations if the firm has a substantial
effect. 
 Application of Foreign Antitrust Laws:
 European Union Enforcement: EU’s laws
promoting competition tend to be stricter than
those of the United States and define more
conduct as anticompetitive.
 The EU actively pursues antitrust violators, especially individual
companies and cartels that allegedly engage in monopolistic
conduct. 
Increased Enforcement in Asia and Latin
America: Japanese antitrust laws forbid unfair
trade practices, monopolization, and
restrictions that unreasonably restrain trade.
China’s antitrust rules restrict monopolization
and price fixing (except that the Chinese
government can set prices on exported
goods). 
Increased Enforcement in Asia and Latin
America: Indonesia, Malaysia, South Korea,
Vietnam, Argentina, Brazil, Chile, Peru, and
several other Latin American countries all
have statutes protecting competition.

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BUSINESS LAW

TEXT AND CASES

CLARKSON MILLER CROSS  

CHAPTER 46: ANTITRUST LAW

 The laws regulating economic competition

passed the Interstate Commerce Act in

Per se violations are blatant and

to sanction under Section 2: monopolization

anticompetitive behavior that are not covered

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