Whether or Not the Acts of the Howart Tools Are Violative of the Sherman Act - Essay Example

Qn I In order to decide whether or not the acts of the Howart tools and others are violative of the Sherman Act, provisions of the act such as combination, conspiracy, rule of reason, price fixing, conscious parallelism likely to be attracted, need to be explained. Sherman Act’s provisions are attracted only in the case of interstate commerce though parties or goods or services need not be physically in different states as mentioned in section 1. The trade practices among the parties across different states or with foreign nations which are in the nature of restraint of trade are considered illegal. The restraint of trade means restraint of competition. The trade practices in the form of contracts, combinations should result in affecting free competition or free trade. Every person who does the act of combination, contract or in any other manner restraining the free competition is guilty of a felony and is punishable with a fine of not more than one million dollars in the case of a corporate entity or one hundred thousand dollars in the case of a person or with both as may be decided by the court. Therefore in order to constitute an offence under section 1 of the Sherman Act (Act) , there should be some combination or common action by two or more actors or legal entities. As said above the concept of interstate or foreign commerce has been expanded over the years covering all commercial activity just as the concept of combination. Thus a combination is enough to satisfy the statutory requirement if the action is among the corporate affiliates or even among the officers of a companies as held in United States v. Yellow Cab Co (1947) Section 1 of the act has outlawed conspiracy which in general means a combination of two or more persons to do some act that is unlawful, oppressive, immoral or to carry out an act that lawful but by unlawful, oppressive or immoral methods as held in Studdard v Evans (1964) wherein it was observed that all dealings done on certain terms would have been legal if only they had not been in concert. In another case William v Heartland Hospital East (1994), it was held that a concerted action by a hospital and its staff to deny the plaintiff hospital staff privileges could not be a conspiracy under the Act if the conduct of the defendant had a lawful objective, which in this case was insuring competence and quality of health care. Further, an action in good faith to enforce or passage of laws cannot be a violation of the Act even if it is done in concert with others and for the purpose of destroying competition. (Altman,Pollack, 2007 ) A conspiracy of price fixing or group boycotts may be unlawful per se and conspiracy relating to dealer arrangements, mergers or joint venture may be unlawful under the rule of reason. Thus if the defendants conspire to achieve what is disadvantageous to the plaintiff’s business, it is actionable even if not inherently unlawful. When an act is done by one person becomes a public wrong if many people act in concert.. The rule of reason test that was subsequently conceptualised after some years of functioning of the act was in fact relaxation of the rigid objective reasoning to subjective reasoning by which one can apply the negative impact on the competition in order to conclude whether or not the act has been violated. The surrounding circumstances therefore justify if the trade practice in question is reasonable or not to pass rule of reason test. If it is for a legitimate business purpose and result in economic efficiency, then it passes the “subjective” rule of reason test and not considered a violation. Thus the ‘per se’ rule enables the judiciary to pass unambiguous decisions and also serves as clear guideline for the potential parties for the safe conduct of their business and making the business decisions error free. Yet doubts persist among the economists who question the so called business practices having potential to disrupt competition. As already stated above, “per-se” violations are horizontal price fixing, group boycotts, production quotas, horizontal territorial limitations or market divisions and tying arrangements. Horizontal price fixing is recognised when fellow business men at the same level of trade say retailers fix among themselves mandatory prices of their products or services for all to follow. This results in common prices aimed to eliminate competition or reduce it, thereby maximising their profits to the extent possible. Persons bound to be affected are consumers and in some cases some of the new entrants to the respective trade or unwanted competitors for the group of person acting in concert. It is not a defence if the plea of the group of persons who have acted in concert that they have fixed only reasonable prices only to avoid suicidal competition. The price fixing need not be direct, it can be in the form of discounts, credit terms, freight prices and buying excessive stocks to create scarcity or deny products to others whom the group does not want to be in the trade. The persons acting in concert are not required to meet in person and openly fix prices in order constitute an offence under the act. If the competitors are few in the market capable of controlling the prices, it is oligopoly and the market players generally are found to be following the pricing pattern of the market leader among the group or they simply follow the other firm’s pricing behaviour. Prices fixed under these conditions is also akin to “price fixing” violative of Sherman Act. Some times, it can happen to be what is known as “conscious parallelism” as a lawful coincidence without any evidence of collusion among the competitors. They are considered to indulge in price fixing in an informal manner with the lead role of a firm that is capable of setting prices without having to depend on the practices of competitor firms. Resale price maintenance (RPM) This is a kind of vertical action in restraint of trade in which retailers are compelled to sell at a minimum price by the suppliers in order to have control over profits. This can be done both implicitly as well as explicitly. In the same manner, retailers may seek the RPM in order to achieve horizontal price fixing. While fixing maximum prices vertically is legal as the understanding among the suppliers and retailers is that the latter should not exceed certain price levels when they resell the former’s products.( Emerson, 2003) This will however drive out the competitors who are inefficient and for this reason alone, the practice is allowed since it will benefit the consumers with the least possible prices. This is an apt example of “rule of reason” test as held by the U.S Supreme Court in State Oil Co v Khan (1997) Tying arrangement This is an exclusive arrangement of distributorship granted by a manufacturer to a distributor within a specified geographical area. This is a per se illegal unless court find if there are substitute products and there is free competition by applying the rule of reason test when such an arrangement is lawful.(Emerson, 2003) However if such an arrangement of a single manufacturer engaging a single distributor is illegal under section 3 of the Clayton Act as it would create monopoly or scuttle competition. Both federal and state laws prohibits arbitrary termination of distributorship by a manufacturer unless it is as a result of distributor’s inefficient marketing, breach of terms and conditions or change in the manufacturer’s marketing strategy.(Emerson, 2003) Besides, tying arrangements that charges near monopoly price for the tied up product of any nature such as goods, land , service or intellectual property is prohibited under the Sherman Act.. Clayton Act prohibits only if commodities are involved. The plaintiff or prosecutors must prove the existence of horizontal agreement or any form of trade restraint by unearthing evidences of collusion, contract, combination, concerted action or a conspiracy through direct or circumstantial evidence. The evidences must show that there were meeting of minds of the parties, unity of purpose as held in Copperweld Corp case (1984). There must have been a ‘conscious commitment on the part of the defendant to common scheme for the purpose of achieving an unlawful objective”. This was established in Monsanto (1984) case. In the case of conscious parallelism, it is not sufficient for the plaintiff to merely show that the competitors increased their prices within a short time of each other for establishing horizontal agreement as held in Theatre enters Inc.(1954). The plaintiff should rather prove that price was enhanced pursuant to an agreement between two or more parties and as a circumstantial evidence the coordinated nature of price increases could be cited by the plaintiff as observed in American Tobacco case(1946) In order to show that it amounts to a consciously parallel behaviour, the court expects the plaintiff to show some plus factors. It has held that such a behaviour is not conclusive evidence of an agreement for restraint of trade. The consciously parallel behaviour theory has prompted the court to require establishment of existence of conspiracy. In Theatre Enters Inc case it was observed ““but conscious parallelism has not yet read conspiracy out of the Sherman Act entirely” (1954). While the court wants plus factors, they need not be of direct evidence and explicit agreement is not required for the conspiracy under Sherman Act as the plaintiff or the prosecutor cannot adduce such evidence.(Monsanto Co 1984) In a bid to locate plus factors, the court will look for existence of any motive for anticompetitive understanding like letters exchanged, meeting or other forms of communication among the defendants. The contacts though appear to be vague can be correlated to timing of the price variations or occurrence of any unlawful subject matter.(Broder and Maitland, 2005, p 57) Now having seen the broad principles on the possibilities of implicating somebody in a conspiracy act under the Sherman legislation, it is easy to deduce the involvement of Howard Toll Company in their restraint of trade activities. The parties involved are not manufacturing identical products but in different versions according to their own know-how but they are used for the same purpose. or applications but with different results in terms of efficiency. Undoubtedly, Howard Tool company is the industry leader and the other four producers are on record to have followed suit when ever the industry leader increased or even decreased their prices. The decreases were effected when new entrants surfaced in the market to compete wit them. Although it is an explicit horizontal price fixing, no direct evidences are available. The manner in which they have acted in concert shows that theirs was in fact an act of conscious parallelism.. The plus factors are that they have been able to maintain uniform prices for seen years, that they varied their prices according the market situation soon to be followed by other producers. When new entrant came, the industry leader ruthlessly reduced their prices along with others reducing theirs also in succession. The Howard company has also filed suits against the new entrants for their alleged patent violations. They are also in the habit of repurchasing the equipment from their buyers as a mandatory condition apparently with the ulterior motive of preventing the designs from being copied by their competitors. The buyers have also to return the used tool bits. Though these may appear to be genuine as a measure to ensure their survival in the market in the long term, it cannot be denied the Howard tool company and other competitors they acted in conscious parallelism. Therefore they are guilty of having violated the Sherman Act. The State as an enforcement agency or other potential competitors who were kept out of competitions or the buyers who were subjected to the mandatory conditions of returns, may file anti-trust suits against the Howard tool company and others for having earned extra profits t their expense by undoing the competition. They are individually punishable with a fine of $ 100,000,,000 if a corporation or $100,000 if any other person or punishment 10 years in prison or both as maybe decided by the court.(Sherman Act) They can be alternatively fined with two times of the amount of harm done to them or twice the amount enjoyed by the conspirers.(US 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 under section 2 of the Sherman Act. Section 2 states that “every person who shall monopolise, or attempt to monopolise, or combine or conspire any other person or persons, to monopolise any part of the trade or commerce among the several states, or with foreign nationals, shall be deemed guilty of a felony, and on conviction there of, shall be punished by fine not exceeding not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.” (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 monopoly power in the market, and two, deliberate acquisition or maintenance of that power. According to the Supreme Court, monopoly is the power to manipulate prices or eliminate competition in a relevant market. If there is a monopoly power found, it should have been wilfully acquired or maintained. It is not necessary to show that the monopoly power is abused or deliberated practiced to eliminate competition. It is enough show that there are conscious acts are in furtherance or maintenance of that power in the market. If the monopoly acquired as a result of 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 prove that the defendant had intent acquire monopoly. ( Steuer) In US v E I du Pont de Neumors & Co (1956), the Supreme Court held that there was no illegal monopoly exercised by the defendant manufacturing cellophane and cellulosic caps and bands since there was competition and interchangeability with other wrappings. In American Tobacco v US (1946), the Supreme Court held that since there was conspiracy or a combination as an attempt to monopolise existed, it is not necessary to prove actual exclusion of competitors. In Eastman Kodak v Image Technical Services, Inc(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 make it difficult to compete with the manufacturer Eastman Kodak in servicing such equipment as the ISO furnished sufficient evidence to show that manufacturer had power to control power in the service and parts market. Supreme court agreed with the appellate court and held that the manufacturer possessed power to monopolize service and parts market as there was no readily available substitutes.( J John and JD Dvorske, 2009) 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) Market Analysis under Section 2 of the Act. Dyco has monopoly power 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 in the market will increase since the demand for the product is highly sensitive to price. 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 under section 1 of the Sherman act as treble damages equivalent to three times they have been overcharged. The defendant having already agreed to a fine of $ 250 million to the U.S. Government for the statutory action taken by its department, cannot totally deny the claim now made by the individuals. In this case, the claim is pursuant to section 4 of the Clayton Act. Section 4 of the Clayton Act says that consumers who have paid a higher price for good purchased for personal use are deemed to have suffered an injury to their property and are entitled to claim recover treble damages from the defendant. In Reiter v Sonatone Corp it was observed as “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws (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 under section 1 of the Sherman Act. The consumers have not filed by themselves but by their representative organisation. Under the Sherman Act only the 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 not the same. IV In this case, farmers retaliate the 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 for all of them. The behaviour on the part of 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 per-se offence of horizontal price fixing regardless of economic justification. 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 on the one hand and the farmers on the other 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 on the one hand and affecting the consumers as well, on the other. The 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 is a violation section 2 of the Sherman Act. References American Tobacco Co United States, 328 U.S. 781, 810 (1946) Broder Douglas F and Maitland-Walker Julian, 2005, A guide to US Antitrust law, Sweet & Maxwell, p 57 Copperweld Corp v Independence Tube Corp., 467 U.S. 752,771 (1984) Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 112 S. Ct. 2072, 119 L. Ed. 2d 265, 1992-1 Trade Cas. (CCH) ¶69839 (1992), 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 1, p 64 Joinder of parties. 54 Am. Jur. 2d, Monopolies, Restraints of Trade, and Unfair Trade Practices § 635 Louis Altman and Malla Pollack.,2007, Callmann on Unfair Competition, Trademarks, and Monopolies (Westlaw database CALLMANN) (4th ed). Eagan, MN: Thomson/West, 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> State oil co v Khan, 522 U.S.3 (1997) Steuer Richard M, Executive Summary of Antitrust Laws, http://library.findlaw.com/1999/Jan/1/241454.html# Studdard v Evans (1964) 108 Ga. App.819 (135 SE2d 60 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. Yellow Cab Co., 332 U.S. 218 (1947) 15 U.S.C. § 2 : US Code - Section 2: Monopolizing trade a felony; penalty U.S. Dept. of Justice, Opening Markets and Protecting Competition for America's Businesses and Consumers: Goals and Achievements of the Antitrust Division (March 27, 1996); see 18 U.S.C. § 3571(d) (1994). U. S. v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 76 S. Ct. 994, 100 L. Ed. 1264 (1956), Read More