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 What Is Antitrust Law?

Antitrust law is a broad category of U.S. state and federal laws that regulate business enterprises so as to promote competition. Antitrust law works to curtail monopolistic business practices. It helps to promote a free market economy that provides consumers with a reasonable amount of choice in the marketplace for products and services.

What Is an Antitrust Violation?

There are several ways in which a business enterprise can be in violation of antitrust laws. The courts examine possible antitrust violations by applying the standard of “per se violations.” Under this framework, all that must be proven in court is that the party accused of antitrust violations actually committed one of several “per se violations.” Both the intent of the accused and the effects of their actions are irrelevant.

Among the more common and well-known antitrust per se violations are the following:

The Three Main Federal Antitrust Acts

There are three main bodies of law that comprise federal antitrust law. The Antitrust Division of the Justice Department and the Federal Trade Commission enforce these three federal acts. Most states also have their own antitrust laws, which are enforced by the states themselves. Private parties can also play a role in enforcement of antitrust laws as certain laws authorize them to file lawsuits claiming anti-competitive business practices.

The three main federal acts that comprise federal antitrust law are as follows:

  • Sherman Antitrust Act of 1890: The Sherman Act prohibits contracts and conspiracies that restrain trade and promote monopolization. Examples of conduct that is outlawed by the Sherman Antitrust Act are agreements among competitors to fix prices, rig bids, and allocate customers between or among them.
    • These acts can be punished as criminal felonies. Courts may impose fines on those convicted or even prison terms. In addition, courts may issue orders restraining future violations. The Antitrust Division of the Justice Department mostly enforces the provisions of the Sherman Act;
  • Clayton Act of 1914: The Clayton Act deals with specific types of illegal restraints including exclusive dealing arrangements, tie-in sales, price discrimination, mergers and acquisitions, and interlocking directorates. Violations of the Clayton Act lead to civil penalties only. The Clayton Act is enforced jointly by both the Antitrust Division of the Department of Justice and the Federal Trade Commission. The Act also authorizes lawsuits by private parties in federal court for damages and to prohibit future violations;
  • Federal Trade Commission Act: The Federal Trade Commission Act is enforced solely by the Federal Trade Commission (FTC). This act is viewed as a catch-all set of laws, constructed to include all the prohibitions of the other antitrust laws. In addition, there are provisions that close loopholes in the other, more explicit regulatory statutes.

What Do State Antitrust Laws Do?

Many states have their own antitrust laws. They are generally similar to federal antitrust laws, and they allow private parties to file lawsuits against companies that engage in anticompetitive conduct.

While state and federal antitrust laws are conceptually similar, the exact provisions in state codes vary widely from state to state. For example, some state antitrust laws substantially track the language of the federal laws. In other states the law incorporates certain sections of federal antitrust laws. They may define specific types of prohibited acts, and some may include new areas of substance entirely.

In many cases, state antitrust laws cover more territory than the federal antitrust laws do in terms of the kinds of conduct that are prohibited. The interpretation of state antitrust laws by state courts often, but not always, follows the interpretation of federal antitrust laws.

Some examples of state antitrust laws are as follows:

  • The California Cartwright Act: This is the primary antitrust law in California. It prohibits a variety of anti-competitive actions by companies operating in California.The Cartwright Act prohibits any agreements among competitors to restrain trade, fix prices or production, or reduce competition. Private parties are authorized to file lawsuits claiming violations of the Cartwright Act. The private parties who initiate Cartwright Act lawsuits are generally competitors who claim unfair competition. Or they could be consumers who allege that price fixing or restraints on trade have increased the prices they have paid for products and services. Among the prohibited activities are:
    • Price Fixing: When competitors agree to buy or sell products, services, or commodities at the same fixed price or rate, they have committed price fixing;
    • Group Boycotting: Group boycotting happens when competitors agree to boycott a certain entity;
    • Market Division Scheme: A market division scheme is an agreement between or among competitors to divide markets, products, customers or territories amongst themselves rather than allowing customers to make choices about the business they wish to patronize;
    • Exclusive Dealing: Exclusive dealing involves requiring a buyer to buy all of a certain product from a single supplier or a seller to sell all of a certain product in its inventory to a single buyer;
    • Price Discrimination: Price discrimination involves selling the same or similar goods to different buyers at different prices. The point is usually to drive one of them out of business in order to give an advantage to another;
    • Tying: Tying comprises selling a product or service on the condition that the buyer agrees also to buy another product or service offered by the business;
  • California Unfair Practices Act: The California Unfair Practices Act (CUPA) prohibits illegal price discrimination in California. The Act authorizes private parties to file lawsuits against companies that engage in prohibited practices. The CUPA prohibits price discrimination where the intent of the practice is to lessen competition. Those acts that represent efforts to compete legitimately with competitors are not prohibited. Prohibited activities include the following:
    • Selective Payment of Secret Commissions or Rebates: If a business secretly offers rebates, commissions, or other special services to some customers but not to others, this can be unlawful when those payments lessen competition. For example, a company may sell a product to many distributors and secretly offer a discount to all except one in an attempt to drive it out of business;
    • Price Discrimination: Businesses sometimes offer different prices for the same service in order to drive competitors out of business. For example, a cable company with a single competitor in one territory may lower its prices in that territory to drive the competitor out of business;
    • Selling a Product or Service Below Cost: Some companies sell products below the cost of producing or acquiring them in order to drive competitors out of business. By temporarily losing money, these companies can gain a long-term market share increase when their competitor exits the market;
    • Loss Leaders: “Loss leaders” are products that a company sells below what it costs the business to produce or acquire them. These products are sold below cost to increase sales with the goal of increasing sales of other products or services. For example, a cell phone company may sell phones to its customers below what it costs to acquire or produce them in order to attract customers to its highly profitable service contracts;
  • The New York Donnelly Act: The Donnelly Act is the main antitrust law in New York and it closely resembles the Sherman Act. It explicitly prohibits several actions, including:
    • Price Fixing: Price fixing happens when competitors agree to buy or sell products, services, or commodities at a fixed price or rate;
    • Bid Rigging: When competitors agree to divide contract bids among themselves in a certain way, they are engaged in bid rigging;
    • Market Division Scheme: Market division schemes are agreements between competitors to divide markets, products, customers or territories amongst themselves. This involves businesses choosing their customers rather than customers choosing the business with which they prefer to deal;
    • Group Boycotting: If business competitors agree to boycott a certain entity, they are engaged in group boycotting;
    • Tying: Tying involves selling a product or service on the condition that the buyer agrees also to buy a different product or service.

Do I Need an Attorney for an Antitrust Problem?

If you face allegations that you have violated state or federal antitrust laws, you want to consult a business lawyer with antitrust experience promptly. Violations of U.S. antitrust laws can be serious offenses that come with both civil and criminal penalties, including possible jail time. Your attorney can inform you of your legal rights and can also help you formulate possible defenses and present them as effectively as possible.

If you believe another business has violated antitrust laws and harmed you or your company, you should speak to a business lawyer. Your lawyer can properly analyze your situation and prepare a lawsuit on your behalf if you have been victimized by anticompetitive practices that violate federal or state antitrust laws.

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