Antitrust Laws: Us Application And Enforcement Strategies

The US applies antitrust laws to prevent companies from abusing their power and to protect consumers. Antitrust laws are a collection of mostly federal laws that regulate the conduct and organisation of businesses to promote competition and prevent monopolies. The three main US antitrust statutes are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914.

The Sherman Act outlaws every contract, combination, or conspiracy in restraint of trade and any monopolisation, attempted monopolisation, or conspiracy or combination to monopolise. The Clayton Act addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates. The Federal Trade Commission Act bans unfair methods of competition and unfair or deceptive acts or practices.

The US Department of Justice's Antitrust Division enforces federal antitrust and competition laws. Civil antitrust enforcement occurs through lawsuits filed by the Federal Trade Commission, the Antitrust Division of the US Department of Justice, and private parties who have been harmed by an antitrust violation. Criminal antitrust enforcement is only carried out by the Justice Department's Antitrust Division.

The Sherman Antitrust Act

The Act broadly prohibits anticompetitive agreements and unilateral conduct that monopolizes or attempts to monopolize the relevant market. It authorizes the Department of Justice to bring suits to prohibit conduct violating the Act and permits private parties injured by the Act to bring suits for treble damages.

The Act makes it illegal to monopolize, conspire to monopolize, or attempt to monopolize a market for products or services. An unlawful monopoly exists when a firm has market power for a product or service, and it has obtained or maintained that market power, not through competition on the merits, but because the firm has suppressed competition by engaging in anticompetitive conduct.

The penalties for violating the Sherman Antitrust Act can be severe. While most enforcement actions are civil, the Act is also a criminal law, and individuals and businesses that violate it may be prosecuted by the Department of Justice. Criminal prosecutions are usually limited to intentional and clear violations, such as when competitors fix prices or rig bids. The Act imposes criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison.

The Clayton Antitrust Act

The Clayton Act made both substantive and procedural modifications to federal antitrust law. Substantively, the act seeks to capture anticompetitive practices in their incipiency by prohibiting particular types of conduct not deemed in the best interest of a competitive market. There are four sections of the bill that proposed substantive changes in the antitrust laws by way of supplementing the Sherman Antitrust Act. These sections thoroughly discuss the following four principles of economic trade and business:

• Price discrimination between different purchasers if such discrimination substantially lessens competition or tends to create a monopoly.
• Sales on the condition that the buyer or lessee not deal with the competitors of the seller or lessor ("exclusive dealings") or that the buyer also purchase another different product ("tying") but only when these acts substantially lessen competition.
• Mergers and acquisitions where the effect may substantially lessen competition or where the voting securities and assets threshold is met.
• Any person from being a director of two or more competing corporations, if those corporations would violate the antitrust criteria by merging.

The Clayton Act also prohibits an individual from sitting on boards of competing corporations. This illegal practice can lessen the competitive vigor that would otherwise exist between truly independent rivals. By sharing a board member, the two companies might synchronize pricing changes, labor negotiations, and more.

The goal of the Clayton Act is to maintain a fair marketplace where various companies can compete, giving consumers more options and better prices, and giving workers a fair market for their labor. This law also protects individuals and small businesses from being unfairly treated by larger companies. Overall, it works to keep markets competitive and ensure that businesses play fair.

The Federal Trade Commission Act

The FTC Act established the Federal Trade Commission (FTC), which enforces a variety of antitrust and consumer protection laws affecting virtually every area of commerce. The FTC's competition mission is to enforce the rules of the competitive marketplace, promoting vigorous competition and protecting consumers from anticompetitive mergers and business practices. The FTC Act empowers the agency to investigate and prevent unfair methods of competition and unfair or deceptive acts or practices affecting commerce. This creates the FTC's two primary missions: protecting competition and protecting consumers.

The FTC Act gives the FTC authority to seek relief for consumers, including injunctions and restitution, and in some instances to seek civil penalties from wrongdoers. The FTC can implement trade regulation rules that define unfair or deceptive acts or practices with specificity, and the Commission can publish reports and make legislative recommendations to Congress about issues affecting the economy. The FTC monitors all its orders to ensure compliance.

The FTC Act also outlines the investigative authority and powers of the FTC. The Commission may “prosecute any inquiry necessary to its duties in any part of the United States,” and is authorized to gather and compile information concerning the "organization, business, conduct, practices, and management" of any person, partnership, or corporation engaged in or whose business affects commerce. Pre-complaint investigations are generally non-public. The FTC Act's specific investigative powers are defined in Sections 6, 9, and 20, which authorize investigations and various forms of compulsory process.

The FTC enforces various antitrust laws under Section 5(a) of the FTC Act, which prohibits "unfair methods of competition". Unfair methods of competition include any conduct that would violate the Sherman Antitrust Act or the Clayton Act.

Price fixing

Examples of Price Fixing

• Purposefully reducing output or sales in order to charge higher prices
• Setting a common minimum price for goods
• Buying products from a supplier at a specified maximum price
• Establishing uniform costs and markups
• Purposefully sharing or pooling markets, territories, or customers
• Discontinuing a free service or fixing the price of one component of an overall service

Laws Prohibiting Price Fixing

• Sherman Antitrust Act
• State antitrust laws, including the Cartwright Act in California

Mergers and acquisitions

The US antitrust laws are a collection of federal laws that regulate the conduct and organisation of businesses to promote competition and prevent unjustified monopolies. The three main US antitrust statutes are the Sherman Antitrust Act of 1890, the Clayton Antitrust Act of 1914, and the Federal Trade Commission Act of 1914. These laws serve three major functions: prohibiting price fixing and the operation of cartels, restricting mergers and acquisitions that may substantially lessen competition or create monopolies, and prohibiting monopolisation.

The Sherman Act outlaws "every contract, combination, or conspiracy in restraint of trade" and any "monopolisation, attempted monopolisation, or conspiracy or combination to monopolise". The Clayton Act was enacted to bolster the antitrust regime by reaching potentially anticompetitive practices in their early stages, notably mergers and acquisitions. Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly".

The Agencies responsible for enforcing the US antitrust laws are the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ). They are responsible for reviewing mergers and acquisitions and can bring suits in courts to block transactions or enjoin illegal conduct. The Agencies will analyse how competition in the marketplace will change as a result of a merger or acquisition. They will consider whether the combined entity will have market power, whether it can sustain price increases, slow innovation, or influence other competitors, and how this will impact consumers.

The Agencies can also compel companies to submit documents during a merger investigation. These documents may bring to light non-merger-related conduct that is prohibited under the antitrust laws, which can result in separate investigations and penalties.

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires companies planning large mergers or acquisitions to notify the Agencies of their plans in advance. The Agencies will then review the proposed merger and decide whether to decline to challenge it, file a lawsuit, or issue a "Second Request" to extend the waiting period and request additional information.

Frequently asked questions