Preserve, Protect and Defend - Dealing Fairly and Squarely with Clients in Antitrust Law Practice

Keith E. Rounsaville
Stockholder and Chair of Antitrust Practice
Akerman Senterfitt

A Brief Overview of Antitrust Statutes. ^[1]

The Sherman Act

The purpose of antitrust law is to eliminate and prevent artificial restraints on output of goods and services, because those restraints result in lower-quality goods and services and higher prices to consumers. The Sherman Act is the most important antitrust statute. For a statute of such importance, its key provisions have relatively few words. Judicial interpretations of them would fill many library shelves , as would the scholarly commentary and criticism which they have generated.

Section One of the Sherman Act ^[2] prohibits "every contract, combination or conspiracy " in restraint of trade; that is, concerted activity of two or more entities to reduce output or increase prices. The Supreme Court long ago determined that concerted activity by participants at the same level of the distribution chain “ "horizontal restraints" “ are more likely to harm competition than concerted activity by participants at different levels of the distribution chain “ "vertical restraints." The Court devised legal standards which condemn many horizontal restraints as conclusively anticompetitive or "illegal per se ." Many per se illegal horizontal restraints, including price-fixing, bid-rigging, and geographic market allocation, are prosecuted as felonies by the U.S. Department of Justice. Only one vertical restraint, minimum resale price-fixing , is treated as per se illegal.

Other vertical restraints are evaluated under the "rule of reason," which requires an examination of the effect of the restraint on competition in a relevant market. Vertical restraints, including minimum resale price maintenance, are not subjects of criminal prosecution .

Section Two of the Sherman Act ^[3] addresses anticompetitive exercises of market power by single firms, ^[4] which by themselves can reduce their output and increase prices without losing significant sales to competitors. Such firms often do business in markets in which barriers to entry, such as patents or regulation, inhibit new entry into the market. Merely being a monopolist does not violate Section Two. Rather, to violate Section Two, a firm which has monopoly power must engage in anticompetitive conduct which excludes or eliminates one or more competitors .

A goal of antitrust laws is to preserve freely competitive markets for goods and services. A freely competitive market is one in which the output of goods and services will match the demand for them at prices that equal their marginal cost. This price level includes some level of profit for efficient producers. Of course, all producers are not equally efficient, and less efficient producers often fail in a functioning competitive market. The Sherman Act was not intended to prevent inefficient competitors from failing. Contrary to expectations of failed businesspersons, the antitrust laws do not create or preserve a "level playing field."

The Robinson-Patman Act

The Robinson-Patman Act ^[5] ("RPA") is an important exception to the general proposition that the purpose of antitrust laws is to prevent and eliminate unreasonable restraints on output and prices. The RPA was enacted in the 1930's as a measure to preserve "mom and pop" grocery stores by curbing the buying power of the rapidly expanding retail grocery chains. The primary objective of the RPA was to limit "price discrimination," ^[6] which enabled retail grocery chains to purchase large quantities of products more cheaply than the "mom and pops" could purchase them and to resell those products at prices lower than "mom and pops" could profitably resell the same products. Price discrimination is simply the sale of the same product to different customers at different prices. For many years , the RPA has been criticized by economists and antitrust scholars, because it inhibits price competition by requiring sellers to sell their products to competing purchasers at the same prices.

The RPA does not prohibit all price discrimination in sales to competing customers. The RPA permits a seller to demonstrate that a lower price to a customer is "cost-justified" or that it "meets" the lower price offered by a competing seller to a favored customer. In litigation, seeking to hold a seller liable for price discrimination, the RPA has the "virtue" of having several elements which the plaintiff must prove to establish liability.

^[1] I omit the Clayton Act in this discussion, because §3 has effectively been subsumed by §1 of the Sherman Act, and §7, which governs certain mergers and acquisitions, is not a statute which I apply frequently in my practice.

^[2] 15 U.S.C. §1 (2000).

^[3] 15 U.S.C. § 2 (2000).

^[4] Section Two also contains a conspiracy offense, which has been treated similarly as violations of Section One.

^[5] The RPA amended § 2 of the Clayton Act of 1936, 15 U.S.C. § § 13-13b, 21a (2000).

^[6] Other provisions of the RPA prohibit fictitious brokerage ( § 2(c)), requiring sellers to grant advertising and promotional allowances to competing customers on proportionately equal terms. § § 2(d), 2(e)