Usa Antitrust Law: Resale Price Maintenance - Assignment Example

I The toot bit producers are presumably from different States of the U.S. only in which case, the Sherman Act 1890 applies and not if all the producers concerned are within a State where the respective State’s antitrust law will apply. However interstate commerce is not necessarily transportation between the States but also covers transactions during the course of interstate commerce which involves purchase and sale of goods from one state to another, wholesaler’s sale to retailer within the same state where goods are despatched from an outside the state factory to or for a retailer as held by the court. The renders all agreements that would result in restraint of trade, illegal.. However the Act subsequently became lenient to allow trade practices that are reasonable passing the “rule of reason test”. Sherman Act is therefore subjective and applies the negative impact on competition before deciding on violation of the Act for punishing those found violating.. The reasonableness of a trade practice is proved with surrounding circumstances. The reasonableness test makes it lawful if the relevant practice appearing to be in restraint of trade is pursuant to a legitimate business purpose and if they result in economic efficiency. There may be restraints practices but they should detrimental. There can be agreements among competitors that are ““per-se’ violations. In a way the pre-se rule makes judiciary decision making unambiguous and provides the market players clear guidance for their safe conduct and efficient decision making. But the rule is controversial since economists debate whether such business practices truly harm competition. The practices considered as per se violations are parallel level price fixations , boycotting , ceiling on manufacturing volumes , same level area restrictions, and tie-ups. Horizontal price fixing is so considered where competitors at the same level e.g. retailers fix mandatory prices for their products or services. This arbitrary fixation of common prices is the direct way to eliminate or reduce competition. There can be no justification even if the competitors maintain that they have fixed only reasonable prices with a view to avoid ruinous competition. The price fixing is wide enough to include discounts, credit terms, freight prices and even to buy excessive volume of commodities. They need not meet in person and openly fix prices. If there are only few firms in the industry controlling the market constituting an oligopoly and they follow the pricing pattern of the industry leader among them or mimic the other firm’s pricing behaviour, they are also called price fixing. Sometimes it may be the case of what is called “conscious parallelism” which is lawful provided there is no evidence to show collusion among the competitors. They are presumed to indulge in price fixing however informal the arrangements may be initiated by a firm which is in a capacity to set prices without depending other competitor firms’ practices. Resale price maintenance (RPM) It is a popular practice of vertical restraint of trade by which retailers are required to sell at a minimum price by the suppliers so as to have control over profits. This can be done in implicit or explicit manner. Some retailers also may seek the RPM in order to have horizontal price fixing. However, vertical fixing maximum prices are lawful. In this practice, manufacturers or suppliers insist that retailers or dealers down the line in the distribution chain should exceed a certain price level for their products. (Emerson, 2003) Though this may drive competitors to leave the business, it is allowed since it improves efficacies in the market and benefits consumers with low prices. This is justified by the reasonableness rule established in law by the highest court in the country, Group boycotts: Group of distributors boycotting to buy a manufacturer’s product so as to force him not to deal with a particular distributor who may be rebel distributor. However, a manufacturer declining to supply a specified trader is quite legal. (Emerson, 2003) Tying arrangements; This covers exclusive distributorship by which a firms get exclusive right to sell a manufacturer’s particular product within a geographical limit. Such arrangements are viewed as illegal per se though courts apply rule of reason test hold them legal if there are substitute products available and there is free competition as a result. (Emerson, 2003) Exclusive dealing by which a buyer is required to deal with the product or service of a single manufacturer is unlawful as per Clayton Act provided such an arrangement creates a monopoly or reduces competition. Though federal and state laws prohibits arbitrary termination by a manufacturer, it is allowed if the distributor is unsuccessful in marketing, breaches terms and conditions of the distributorship agreement or when he changes his marketing strategy. (Emerson, 2003,p 489) Tying arrangement that involves charging of a near-monopoly price for the tied product in any area of activity is prohibited in Sherman. It is also prohibited by the Clayton Act only if commodities are involved. In order to prove that there is horizontal agreement or any form in the restraint of trade, the plaintiff or the prosecutor must prove the collusion, contract, combination , concerted action or a conspiracy by showing direct evidence or circumstantial evidence that there had been the meeting of minds among the parties, unity of purpose.. It has held in Monsanto Co v Spray-Rite Servs Corps (1984) that there must be evidence to prove that the person defending had determination and had schemed to accomplish what has been prohibited in law. As said above for conscious parallelism, the plaintiff or prosecutor cannot bring horizontal agreement in evidence merely by showing that the parties knowingly increased their prices within a short time of each other as held in Theatre Enters. Inc v Paramount Film Distributors Corp (1954) They should prove that the price was enhanced owing to an agreement amongst companies. Apparently coordinated nature in increase could be shown as circumstantial evidence as observed in American Tobacco Co United States (1946) But this alone is not sufficient to establish a violation unless some plus factors shown to prove the consciously parallel behaviour. The Supreme Court has opined that parallel behaviour is not conclusive proof to show that a contract is restricting the commerce and that conscious parallel behaviour has heavily influenced the judiciary to establish the existence of conspiring plot. The plus factors need not necessarily be direct evidence and explicit agreement need not be present for the Sherman Act conspiracy. since the plaintiff or the prosecutor may not always bring forth such an evidence as observed in United States v General Motors Corp(1966). Besides the parallel behaviour, courts will examine whether there had been any motive for anticompetitive agreement such as availability of correspondence, meetings or other communications among the defendants. If such contacts which may be seemingly vague were timed in relation to price variations or any other unlawful subject matter (Broder and Maitland, 2005, p 57) In the instant case of Howard Tool Company, although the parties alleged to have acted in concert have different versions of similar products, they are used for the same purpose or application with varying degrees of efficiency. Howard Tool Company is the market leader and the other four producers simultaneously act whenever the market leader increases his price. The market leader has also reduced prices whenever fresh entries appear in the trades circle.. Though it is horizontal price fixing or restraint, there is no direct evidence available. Hence the market leader and the other five producers’ conduct suggest conscious parallelism among them. This can be supported by the fact of substantially uniform prices of for seven years. Howard has acted as a market leader by increasing or decreasing the prices followed by similar behaviour by the other four producers. Whenever there had been new entrants, all the five have reduced their prices so as to force the new ones out of business. Howard has in fact filed vexatious suits for patent infringement against the new entrants without even verifying the products. Besides, the Howard has the option to repurchase the equipment from their vendees so that it does not go into hand of their competitors. The vendees are also asked to return the used tool bits. Those these conditions cannot be questioned as they are doing it for their own survival in the future, the pricing behaviour by all parties clearly amounts to “conscious parallelism” and hence considered to violate law.. The Sate or the parties who went out of business or the vendees may bring suit against the Howard for having acted in restraint of trade and for having earned extra profits by stifling the competition. Under the relevant law , a person engaged in a combination or conspiracy shall be punishable with a fine of ten million maximum if committed by an incorporation $ one million if committed by an individual or by a punishment of ten years or less or the fine and imprisonment as may be decided by the court.( 15 U.S.C section 1 ,(2004)) Alternatively, they can be fined for a sum double of harm incurred by the victims or twice the amount enjoyed by the violators.(U.S. Dept. of Justice ,1994) II The companies Dye co, X, Y and Z must be in different States or their businesses involve different States to be examined for monopoly for Dye Co According to the law that no one should monopolise, try to monopolise, join or conspire with any one or more people monopolise any business within the country , or abroad. Otherwise, he will be liable to fine and imprisonment of ten million dollars or one million dollars as the case may be or both.( 15 U.S.C. § 2 : US Code ) As per the statute it is not enough if there is a mere a monopoly but there be also an act of monopolization. The offence requires two features; one having predominant position in the trade , and two, deliberate acquisitioning or maintaining of that position.. According to the Supreme Court, monopoly is the ability to manipulate rates or eliminate competition in a particular market.. If there is a monopoly power found, it should have been wilfully acquired or maintained. One need not furnish evidence of abuse of that position or that it is deliberately used to eliminate competition. It is enough show that there are conscious acts are in furtherance or maintenance of the same.. If monopoly acquired owing to high quality of products, business efficiency or even a historic accident, it is not a punishable one. Attempt to monopolise is to acquire the monopoly power not in possession, through anticompetitive means. One should be able to show that one had intent acquire domination. (Steur) It was ruled, it was not the case of unlawful monopoly exercised by the person defending for manufacturing cellophane and cellulosic caps and bands since there was competition and interchangeability with other wrappings. In American Tobacco v US (1946), it was ruled, since there was conspiracy or a combination as an attempt to monopolise existed, there was no need to show actual exclusion of competitors. In Eastman case (1992), the manufacturer had been accused of controlling the independent service organisations (ISO) by making the replacement parts of relevant equipment unavailable to them so as to eliminate competition with manufacturer Eastman as the ISO furnished sufficient evidence to show that manufacturer had power to control power in the service and parts market. The appellate court’s ruling was upheld stating that the manufacturer possessed power to monopolize service and parts market as there was no readily available substitutes.( J John and JD Dvorske, 2009,p 64) Further to have a monopoly power, one should be able control not less than 75 % of share of the relevant market. (Sherman Anti-Trust Act ) The instant case is analysed as under. A) Dyco possesses dominant position in relation to its sale of Orange 100 for photographic use by sheer quality and perhaps business efficiency. But it is not trying to monopolise this position. As for, the agricultural market use, there are other players as well and hence its sales are highly sensitive to price of the product it fixes from time to time. Moreover since 80 % of its sale of this product is for agricultural market and cost of production is almost the same as that of other competitors X, Y, and Z there is no way it can be said to possess monopoly power in respect of its sales agricultural market. As Dyco does not even have fifty percent of the market share, there is absolutely no monopoly power being enjoyed by Dyco. (B) If the production cost is substantially lesser than its other competitors, its selling power will go up due to sensitivity to reduced prices. Its ability to cater to more than 75 % of the market depends upon its production capacity and even in which case, it cannot be said to monopolise its monopoly power. Again because of its high quality and business efficiency. (C) In view of the above analysis, Dyco does not have monopoly power in case A and it can monopolise its dominant power with sufficient production capacity to capture more than 75 % of the market for the product. III Antitrust class actions involve numerous plaintiffs. The actions relate the same events often as a result of antitrust enforcement action by the government. When these multiple actions are brought under different districts, they are transferred to a single district. In private antitrust class actions, recovery of treble damages and attorneys’ fees sought. For the defendants, such class actions are formidable in that they become massive with multiple parties, multiple suits, multiple lawyers and multiple pleadings ending up in staggering volumes. The common threatening feature of such class action suits is amount of treble damages likely to become a very large sum most likely to exceed the defendant’s total assets. As there is great pressure for substantial payments, defendants are caught up in the trap of either going through the pain of inordinate delay to prove their innocence or paying large amounts in settlements to innumerable claimants and a large sum as fees to attorneys.(Joinder of parties) In the instant case, under suit no 1 filed in the Federal court, Sweet & Co, the defendant is pitted against the multiple parties under the banner Drink manufacturers. The claim by the plaintiff for the alleged violation as compensation equivalent to three times they have been overcharged. The defendant having already agreed to a fine of $ 250 million to the government as a result of statutory action taken by its department, cannot totally deny the claims from the individuals. Clayton Act says that consumers who have paid a higher price for good purchased for personal use are considered having incurred an injury to their property and are entitled to claim compensation three times from the defendant. In Reiter v Sonatone Corp it was so held. (Reiter v. Sonatone Corp,1979) However, it is hard to understand how the manufacturers who have made claims, can be considered as consumers. As such their claim under the Clayton Act is misplaced and therefore they cannot succeed. The Suit No 2 is from the Consumers of Sweet Stuff as a consumer class action for violation of the Sherman Act. Consumers have not filed by themselves but by their representative organisation. The law says only individuals or firms who have actually suffered may claim for the damages and the attorney fees. As such, the claim made on their behalf without actual proof of injury is not sustainable. The suit no 3 is again a consumer class action brought on behalf of the consumers under the State antitrust law. It is not clear whether the same set of consumers who have claimed in suit no2, have claimed in this also. As they cannot claim in two different jurisdictions for the same matter, care should had to ensure that the individual claimants are different peole. IV Farmers retaliate concerted action of the sugar refiners for fixing a price at which they will buy form the farmers and sell the sugar at a common price applicable to all. Behaviour by the refiners is per se horizontal restraint both for procurement as well as sale. There is no conscious parallelism involved since the action of the refiners appear to be transparent and tantamount to the offence of parallel fixation regardless of viability in terms of economics.. They fall into the category of unlawful arrangements under the Sherman Act, section 1. It has been held in Texaco Inc v Dagher (2006) that plaintiff must demonstrate that the combination of the refiners and farmers are unreasonable and therefore unlawful. This will be as a result of “rule of reason analysis”.. Here the plaintiff is the Government taking action with the aim of protecting the interests of consumers. If it is a case of conspiracy without any evidence of concerted action, the burden of proving it rests with the plaintiff government. Here the government action in proceeding against the refiners is justified as their action s in restraint of trade both the affecting the farmers & consumers as well. Farmers have acted only in defence of the refiner’s proposed action fix an arbitrary price for their produce; Government can investigate whether the procurement price is excessive or reasonable. Further, agricultural producers are exempt under Clayton Act. Even though farmers have not called themselves as cooperatives, the manner in which they have formed themselves as a group is akin to a cooperative action and as long as their action is only protect from any detrimental effect from the refiners’ action, their concerted action through their selected representatives need not be a restraint of trade.(Reich) . V The news papers Lever and Tide belonging to the same person control 75 % of the market. This is a monopoly power for the management of lever and tide. With this monopoly power, the owner forcibly sells advertising space of the evening news paper tide. The fact that advertisers oblige the Lever management is proof enough to show that wield monopoly power over the news paper market. This contravenes section 2 of Sherman. Works cited American Tobacco Co. v. U.S., 328 U.S. 781, 66 S. Ct. 1125, 90 L. Ed. 1575 (1946) Broder Douglas F and Maitland-Walker Julian, 2005, A guide to US Antitrust law, Sweet & Maxwell, p 57 Emerson Robert W, 2003, Business Law, ed 4, Barron’s Educational Services, p 485-487 J John and JD Dvorske, 2009, Construction and Application of Sherman Act, 15 U.S.C.A. §§ 1 et seq.—Supreme Court Cases, American Law Reports, 35 A.L.R. Fed. 2d, p 64 Joinder of parties. 54 Am. Jur. 2d, Monopolies, Restraints of Trade, and Unfair Trade Practices § 635 Monsanto Co v Spray-Rite Servs Corps, 465 U.S. 752,768 (1984) Reich Arie, The Agricultural Exemption in Antitrust Law: A Comparative Look at the Political Economy of Market Regulation, Texas International law Journal, 42 (3) Reiter v. Sonatone Corp. (U.S. Minn., Jun 11, 1979) 442 US 330, 60 L Ed 2d 931, 99 S Ct 2326. Sherman Anti-Trust Act – Monopolies, < http://law.jrank.org/pages/10247/Sherman-Anti-Trust-Act-Monopolies.html> Steuer Richard M, Executive Summary of Antitrust Laws, http://library.findlaw.com/1999/Jan/1/241454.html# Texaco Inc. v. Dagher, 126 S. Ct. 1276, 164 L. Ed. 2d 1, 2006-1 Trade Cas. (CCH) P 75143 (U.S. 2006); West's Key Number Digest, Monopolies 17(1.12). Theatre Enters. Inc v Paramount Film Distributors Corp, 346 U.S. 537, 541 (1954) United States v General Motors Corp., 384 U.S. 127, 142-143 (1966) Read More