Examining the Intricacies of Antitrust Legislation Through a Number of Relevant Studies - Case Study Example

USA Antitrust law There have been attempts made by the government and the legal system to ensure that there be some kind of control exerted over monopolistic powers of larger and more enterprising businesses to protect the interests of no just developing and newly evolving businesses but the interests of the consumers as well. To this end, the USA has enacted laws such as the Sherman Act and the Clayton Act among others to aid the process of monopoly prevention. These combined are known as antitrust legislation. The following will examine the intricacies of antitrust legislation through a number of relevant case studies. The situation that Howards and other members of the group have created is a direct instance of cartelization along with an evolving pattern of a group where there is the creation of market monopoly by a single entity. This is where the instances of the antitrust laws need to be applied in the stricter sense of the term. Monopoly power is often defined as “the power to control prices or exclude competition”. A firm posses monopoly power if it has the ability to raise prices above the competitive level without losing so much business that the price increase is unprofitable (Pitofsky, Goldschmid and Wood, 2003, p723). It has been found over the years that there are some courts that use the term monopolization interchangeably with the term market power, a Section 2 claim of monopolization commonly requires that a greater show of market power be demonstrated than ordinarily needed. This would therefore automatically mean that in order to posses monopoly power under Section 2 a firm would necessarily have to be in a dominant position in the relevant portions of the antitrust market. In theory at least it would therefore seem that the practices that have been carried out by Howard and the group till date are highly monopolistic in nature given the fact the prices that the group of five led by Howard charges has managed to remain mostly undisturbed over the past decade or so. The prices and their related alterations in the past decade have almost always be engineered by Howard in the sense that these have been instituted by Howard in cases where there were new entrants in competition, Howard would reduce prices until the new entrant was thrown out of business and then rolled back to original status. In caxse there have been attempts at R&D by rivals, Howard would start immediate suits for infringement of its patent, although it can be shown that on at least two occasions Howard officials had not had a prior opportunity to examine the challenged bit. All of this meant that there was a sale of models and an overall monopoly for the group. This would mean that the presence of the firm, or the cartel, or a group in case of an oligopoly, would control the primary shifts that would take place in a given market, be detrimental to the development of competition, regulate unfairly the entry of new competitors and regulate even the price of commodity in a manner so that the needs of the firm or the group be maintained and the monopoly carries on (Sullivan, 1991, p48). Further, under the definition of the relevant market scheme, the relevant market product should include not just current substitutes but also potential substitutes that would be produced in case the prices were raised. The Interstate judgment is relevant in this regard (Interstate Circuit v United States 306 U.S. 208 (1939). The court held here that the government had met the proof requirement adding that “acceptance by competitors, without previous agreement of an invitation to participate in a plan, the necessary consequence of which, if carried out, is restraint of commerce, is sufficient to establish an unlawful conspiracy under the Sherman Act” (Id at 227). The Court provided several reasons for this but of the many provided three are important. First, each knew of the offer that Interstate made to its competitors. Second, no evidence in the record suggested the behavior of the film distributors was individually rational or even independent. Finally, there was an issue of complexity. The idea therefore was that there was the absence of hard evidence that could indict Interstate (Jacobson, 2007, p583), but here the proof of the monopolistic practices are upfront and easy to locate given the fact that the price alterations over a period of time are proof enough of the fact that trade was no carried out in fair manner but that Howard and the group made use of price alteration strategies. In United States v Grinnell for example, the Supreme Court again held that consumers would in most cases shop for cluster of services rather than for individual services and therefore for the new entrants to compete effectively they would have to compete in all areas including the more sophisticated techniques that are patented by Howard. A patent should not therefore be the stumbling block for new investment in research and development of market competition. It could also be held that all competitors need not offer the same precise cluster of goods or services to establish a relevant product market (Pitofsky, Goldschmid and Wood, 2003, p723). Question II: The Defenses-Clayton Act The limitations of the fighting the suit would be the fact that there has already been an indictment that the government has been able to carry through, therefore there can be no arguments placed with respect to whether or not Sweet Co is actually responsible of the charge of price fixing., there would therefore have to be other areas that the defense strategy with respect to the private lawsuits would have to focus on so that the damages could be minimized to the bare minimum. The defenses that could be made use of in this scenario are scenarios like statute of limitations and lack of personal or subject matter jurisdiction, normally available to all litigants. Defenses such as state action, unclean hands would also be part of this brief. The Clayton act applies a four year status of limitations- running from the date the claim accrues – to all private antitrust claims (Clayton Act, Section 4B, 15 U.S.C. and Section 15 B (!994). this would therefore mean simply that an antitrust claim accrues only in instances where in damages would be ascertainable (Broder and Walker, 2005). Under the continuing violation doctrine, each new overt act in furtherance of a conspiracy and each new overt act in furtherance of a conspiracy and each new injury starts a new statutory period. This would therefore basically mean that the statute of limitations for a continuing conspiracy would not begin to run until the conspiracy has ended. It would also need to be considered that the withdrawal of a conspirator from an ongoing conspiracy-in an event where this has successfully been communicated would start the statute running with respect to that party. This particular defense would work like any other tort case defenses wherein antitrust plaintiffs confronted with a statute of limitations defense may seek to prove facts that would support tolling i.e. suspension of the statutory time period. The time period would thus be effectively extended for the duration of the toll. Since the private players could not given the convoluted character of the case use within the extended period, the defense stands firm. Section 5(1) of the Clayton Act tolls the statute for private plaintiffs when the US government has filed a criminal or civil action to prevent, restrain or punish a violation of the antitrust laws. The government action therefore would be applicable in toll terms if (1) the private suit is based, at least in part on the government action; and (2) the private suit is brought within one year of the end of the government action. This is a toll that is applicable in the case oif the new law suits that have been brought again Sweet Co. given the fact that the government had in any case exacted a toll of $250 million from the company and the the new lawsuits have been brought within the extended period there would be an automatic reduction of the damage claims that would need to be paid by the defendant. The Second Circuit stated in Twombly that an antitrust conspiracy complaint must "include conspiracy among the realm of plausible possibilities," and found that the allegations of conspiracy that were made in the case comfortably did so. Twombly v. Bell Atlantic Cop., 425 F.3d 99, 11 1 (2d Cir. 2005). Because the Second Circuit professed to harmonize its own "plausibility" requirement with the "any set of facts" formulation of Conley, its opinion was not perceived to effect major changes comparable to those feared from the Supreme Court's opinion. It would also have to be noted here that economic evidence introduced by defense would have to be introduced to show the absence of conspiracy. This would mean therefore that legal documents and accounts would in most cases be inadmissible. Question III: Relevant Market Analysis in a Sherman 2 case The first and the most important elements that serve to demonstrate whether or not a company is actually monopolistic is whether or not there is the fulfillment of either of the two stated queries: first, the court must ensure the relevant market and then assess the firm’s market power in that market (Hovenkamp, supra note 91, § 6.2, at 269). As this analysis suggests, the relevant market inquiry simply provides the context within which a firm’s market power must be analyzed, because market power alone is not a violation of the Sherman Act (United States v. Microsoft Corp., 253 F.3d 34, 50 (D.C. Cir. 2001). The relevant market is defined by the "cross-elasticity of demand (United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 380 (1956). Courts and economists use this term to gauge consumer reactions to market conditions. Products in a given area that can be substituted for one-another should be included in the relevant market because consumers can turn to different products that serve virtually the same purpose when the price of another similar product goes up. In the given case scenario therefore one would be able to assume the fact that the Dyco relavnt market is that is competitive given the fact that there are others who inhabit the same market space and the pricing strategies of Dyco are sensitive to the actions and the sales of the competition. Moreover, market conditions and prices are never dictated by the strategies that have been fixed by Dyco but are sensitive to the pricing of the distributors and the other owners. Dyco has had pricing problems since distribution to orange growers, which typically accounts for about 80% of Dyco’s sales, must be handled through a vast number of independent jobbers and distributors of agricultural chemicals, and is highly competitive. Dyco has discovered that sales of Orange 100 through agricultural channels are very sensitive to its own price changes, or changes in the prices of X, Y, or Z, while sales to the relatively few buyers in the photographic industry are almost completely unresponsive to price changes. Dyco has discovered no way of making its product unfit for photographic use without also destroying its usefulness in the agricultural market. Three standards emerge, one of which is an "economic standard," one of which is a "legal standard," and one of which is a "hybrid standard." First, the economic definition of market power is simply the "ability to profit by moving the market price away from the competitive level. The legal definition is the ability to exercise control over prices and exclude competition with respect to a given product in the relevant market. Under a leverage theory, a firm can be liable under Section 2 of the Sherman Act for using its monopoly power in one market to gain an advantage in a second market. The theory can be read one of three ways: (1) The leveraging firm will only be liable if, by using its monopoly power in one market, it actually monopolizes a second market and (2) the leveraging firm will only be liable if, by using its monopoly power in one market, it attempts to monopolize a second market; (3) the leveraging firm will only be liable if, by using its monopoly power in one market, it gains an advantage in a second market. In the light of these facts therefore it maybe stated with some certainty that the position that Dyco holds in the market is not that of a monopoly power but that of a fairly competitive agent. Question IV: Price Fixing and Collective bargaining There will invariably be some level of regulation or deregulation that would be placed on the products of a given economy in as mush as that these are the products that bring the market to fruition and hence cannot ever be allowed to continue their movement unrestrained (Bluhm, 1987). There would thus always be a number of exerted controls over the overall growth and movement in the economic market if the fruits of this market are to benefit all. The two forms of control that society has sought to apply in the past are (1) pro-competitive restrictions and (2) anticompetitive regulations. The following question deals with an aspect of regulation on price fixing and the related legal issues of the entire matter. Section I of the Sherman Act, on the surface at least stands in unequivocal opposition to the policy of cartelization, monopoly and oligarchy development and hence inversely to the policy of collective bargaining and standard price fixing.  The language of the Act in this respect is unequivocal. It prohibits ‘every contract, combination…or conspiracy in restraint of trade or commerce in several states’. The idea has ideally been that the agreements among firms to fix prices are per se illegal (Utton, 2003). One can however identify grey areas as far as the act is concerned. In the words of Supreme Court Justice Brandeis, “Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain is of the very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it such that might suppress or even destroy competition. To determine that question, the Court must ordinarily consider the facts peculiar to the business to which restraint is being applied”. One of the landmark judgments in this context was the court decision in the case of Goldfarb v Virginia State Bar (1975). The Supreme Court found in this case that bar association’s activities constituted a classic case of price fixing given the fact that the fee schedule was helping in the establishment of a rigid price floor; no lawyer would charge less. By this logic therefore the plaintiffs would stand guilty of the charges given the fact that in light of the agreement that would be decided upon by the three refineries and the farmers, the prices would be fixed and no farmer would charge less even if he were asked to sell his products to an outside agent. The second thing that would stand impacted from this agreement would the interstate commerce given the fact that consumers outside the state would also have no alternative but to pay the price that had been decided upon by the three refineries. Given the fact that the produce would be sold at a standardized price by the three players in the market, the barriers of entry to any new player would be extremely high and overall between the three players itself the agreement would help kill competition and not maintain it in a better manner.   One could argue here that this particular line of argument would mean that any kind of joint venture or competitive strategy based alliance would be sounded as being illegal and partnerships would therefore never be justified. It is in this context that one could resort to the cases and decisions that have been given over the years where the courts have decided that there are three primary conditions that a deal would have to fulfill for it to be called illegal: • the existence of a contract, combination, or conspiracy among two or more persons or entities; • that unreasonably restrains trade or competition; and  • which affects interstate or foreign commerce. Although there are not yet foreseen costs that could be placed on competition because of the formation of agreement, the circumstances of the case are much like those in United States v. Trans-Missouri Freight Association, 166 U.S. 290 (1897).The Supreme Court held that the Sherman Act prohibited all combinations, irrespective of the purpose (Pitofsky, Goldschmid and Wood, 2003, p51) also stating that there were no exceptions stated in the Sherman Act. In conclusion therefore it maybe stated that there would invariably a shadow of doubt cast over the legality of the agreements being arrived at by the North Carolina group and the government is well within its legal power to bring an injunction that would hold the parties responsible for the violation of Section 1 of the Sherman Act. Question V: Collective Bargaining and Joint Ventures It has been stated in Section I of the Sherman Act that “[e]very contract, combination…or conspiracy…in restraint of trade or commerce,” the Supreme Court held as early as 1911 that Section I prohibits only unreasonable restraints. The inquiry under Section I therefore are confined to a consideration of impact on competitive conditions and the function of the court is to form a judgment about the competitive significance of the restraints (Professional Eng’rs 435 U.S. at 692). Because the inquiry is limited to accessing the market impact of the restraint on competition, “defenses based on the assumption that competition itself is unreasonable or on factors unrelated to the effect on competition are (with only the rarest exceptions completely irrelevant (FTC v Superior Court Trial Lawyers Ass’n 493 U.S. 411, 424 (1990). The decision was made in a rejection of social justifications for boycott designed to increase government-paid legal fees. Unreasonable restraint could be defined as one where prices are raised, or outputs or reduced, thereby diminishing quality, limits choice, or creates, maintains, enhances or preserves market power (NCAA 468 U S at 113). To determine whether or not an agreement unreasonably restraints competition courts traditionally have applied one of the two methods of analysis depending on the nature of an agreement at issue. The prevailing standard for assessing the effect on competition of most restraints is the rule of reason which requires an analysis of the restraint’s actual effect on competition in a relevant market. Some categories of restraints however such as horizontal price fixing and market allocation agreements among competitors are conclusively presumed to restrain competition unreasonably without analysis of the market in which they occurred, study of their actual effect on competition, or evaluation of the purpse for their use; such agreements are considered illegal per se (Maricapa County, 457 U.S at 345-47; Catalano Inc, v Target Sales, 446 U.S. 643, 650 (1980) and Palmer v BRG of Ga., Inc., 498 U.S. 320, 321 (!967). Regardless of the standard used in this scenario, the purpose of the analysis is always to assess the effect of the conduct on existing competition. It was explained by the Supreme Court of America in NCAA v Board of Regents, “Whether the ultimate finding is the product of a presumption or actual market analysis, the essential inquiry remains the same-whether or not the challenged restraint enhances competition. Under the Sherman Act the criterion to be used in judging the validity of a restraint on trade is its impact on competition”(NCAA, 468 US at 104) The Court has overall emphasized that the per se rule of reason are not mutually exclusive polar extremes into which all practices neatly fit; rather, the two standards overlap at the margin. This in NCAAA the Court observed that “there is often no bright line separating per se from Rule of Reason analysis” (California Dental Association v FTC, 526 U.S. 756, 779 (1999). There is often a stipulation placed that the rule overall could be applied only in cases where the per se rule could be applied to certain types of conduct only wfter a threshold examination of market conditions (NCAA, 468 U.S. at 104 n.26). The situation in the case of the Amesville town is in favor of reading the Lever in the mornings making it a clear market leader in the morning newspaper segment. There is also a trend wherein most people in Amesville are also in favor of reading one of two evening newspapers, Tide and Time, having roughly the equal circulation. Both Lever and Tide are owned by the same person and published in a by a single plant management. The income that the two get from advertisement is mostly the same, and directly proportional to their respective share in total circulation- 50 per cent for the Lever, and 25 per cent each for Tide and Time. The question here is that advertising space is not really given to sales in a separate manner as far as Lever is concerned. A given advertiser that wants to buy space in the Lever must also buy identical space in the Tide. In this context therefore the fact that Tide is using the leveraging point that it gets from being the from the same publication house as Lever is therefore an attempt on the part of the owners to ensure that Time goes out of business. The practice therefore is clearly anti competitive and moving towards a monopolistic pattern of trade and work. Under the aegis of this argument therefore one would have to conclude in a decisive manner that the terms that are being put forward would provide an unreasonable restraint to trade and would therefore be needed to be countered. In conclusion therefore it maybe stated that there is a clear case of a violation of antitrust laws in this instance and the owners could be brought under and injunction pertaining to the violation. References Sullivan E T, 1991, Non-price predation under Section 2 of the Sherman Act, ABA Web Store Jacobson J, 2007, Antitrust law developments (sixth), pub, ABA Web Store, p583 Utton M A, 2003, Market dominance and antitrust policy, Edward Elgar Publishing, p157  Bluhm B, 1987, Preferred provider organizations, price-fixing and Section 1 of the Sherman Act, pub, Health Matrix, fall, 5(3):9-16 Pitofsky, Goldschmid and Wood, Trade Regulation, 5th edition, 2003 (University Casebook Series, Foundation Press) Hall K L, 2001, The Oxford guide to United States Supreme Court decisions, pub, Oxford Publishing, p108 Hylton K H, 2003, Antitrust law: economic theory and common law evolution, pub, Cambridge University press, p134 Broder D F and Walker J M, 2005, A guide to US antitrust law, pub, Sweet and Maxwell, p80-81 Read More