The USA Antitrust Law - Sherman Act - Article Example

Answer 1: Section 1 of the Sherman Act states that, “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal”. The idea in Section 1 is to make a pointed reference to agreements. An express agreement, however, not required to create a contract in restraint of trade. Contracts can be implied by the conduct of the parties, so that the mere discussion of prices with a competitor taken together with parallel pricing would be a violation of the Act. From the outset, there was wide agreement that collusion led directly to monopolistic pricing and practices with no offsetting gains (Hildebrand, 2009). There is no attempt made on part of the Act to create a definition of typologies in terms of restrictive agreement, which is illegal. Many activities, which on the face of it appear to violate the Sherman Act, are not illegal unless they unreasonably restrain competition. This is known as the so called “rule of reason”, which was applied to Standard Oil v US. In the context of the case the charge against the defendants was that they were in a conspiracy to restrain trade in petroleum products and monopolizing trade in those products. The Court held that constraints in restraint of trade would be considered to be illegal only in cases where they constituted unreasonable restraints of trade. Acts, which the Act prohibits, may therefore be legal by finding of fact that they are unreasonable. The defendants in the case were however found guilty because of the fact that they had acted unreasonably (Hildebrand, 2009). The history of the adjudication of the Sherman Act is marked by repeated efforts to broaden the ‘rule of reason’. The history of the adjudication of the Sherman Act is marked by repeated efforts to broaden the ‘rule of reason’. Finally, in the Socony Vacuum [US v Socony Vacuum Oil Co., 310 US 150 (1940)] opinion the Court backed away from the rule of reason type of analysis, it had advanced earlier. The Court characterized the agreement as ‘price-fixing’ and ‘illegal per se’ (Hildebrand, 2009). In this context, it was stated that there are certain agreements or practices that because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the excuse for their use. According to the judgment in National Society of Professional Engineers v US: “In the second category are agreements whose anti-competitive effect can only be evaluated by analyzing the facts peculiar to the business, the history to restraint, and the reasons why it was imposed” In making use of the per se rules, the court tends to avoid in the past uncomplicated and prolonged economic investigations into the entire history of the industry involved, as well as related industries, in an effort to determine whether a particular restraint was unreasonable. This per se rule of reason dichotomy has had an enormous impact in the manner in which the courts have approached the Sherman Act; without even analyzing whether an agreement was a restraint to trade, certain categories of agreements were from the outset declared illegal, based upon purely formalistic line-drawing. Although the Supreme Court has not yet given up its use of per se language, it nevertheless seems to have shifted the burden of establishing reasonableness of the restraint to the defendant once the plaintiff has established that the restraint should be of concern to the antitrust policy. The more modern way of describing whether a particular restraint is illegal per se depends on whether the restriction is naked, i.e. without any redeeming possible business justification. Thus territorial restrictions imposed in sole distributor agreements are not illegal per se but only if they are unreasonable, as the territorial restrictions are not the main purposes of the agreement. What this means, in essence that under the aegis of Section 1 of the Sherman Act, for an agreement of restraint of trade to be established, the government would have to prove beyond a reasonable doubt that he idea contract or that he was knowingly and intentionally a member of a combination or conspiracy, and that the purpose of the contract or of the conspiracy was to achieve an objective that would create an unreasonable restraint on interstate commerce (ABA, 1980). In the context of this case, therefore given that the NATLA agreement basically forbids the members such as MTL to do business outside of certain boundaries means that there is a tendency within the contract to hinder interstate commerce. On closer inspection, however, one would see that the idea behind the terms of the contract is aimed at protecting the interests of the members in an overall capacity without placing at a disadvantage any single member. Therefore, the part of the contract which forbade MTL from setting up a setup outside the 25 mile radius is legal and acceptable. The problem however arises with respect to the non-affiliations bit given that its basic aim was to severely limit over-the-road leasing competition between its members. This part of the agreement would be considered unreasonable under the rule of reason review. Answer 2: Monopolisation in the context of business management is dealt with in Section 2 of the Sherman Act. It states in essence that any person or persons attempting to conspire to monopolize an industry is in violation of the act. The Section makes it unlawful for any person or persons to monopolize or combine or conspire with any other person or persons to monopolize” any part of “trade or commerce” in the United States. It also states that such persons if found to be indulging in conduct abetting monopoly would be felt guilty of “a crime, and, or confidence thereof, would have to undergo a punishment through a fine which is not to exceed $10, 00, 000 if the fine is applicable to a company and $350, 000 if it is a person. The indicted could also be imprisoned not in excess of three years”. The Supreme Court has held that the offense of monopolization has two basic elements (Wise and Meyer, 1997): 1. The possession of domination control in the applicable marketplace; and 2. The determined acquirement or preservation of that control as separable from expansion or progress as a result of a better product, business insight, or significant fortune [United States v Grinnell Corp., 384 U.S. 563, 570-571 (1966). It must also be remembered in this context that while there have been attempts by courts to provide definitive guidelines for determining what constitutes an illegal monopoly, no such definitive statements have been forthcoming with respect to instances where single firms are attempting to monopolise (Blecher, 1969). The key threshold issue in a monopolization case is the definition of the ‘relevant market’. The relevant market has been defined as the” area of effective competition” within which the defendant operates [Tampa Elec Co v Nashville Coal Co., 365 U.S. 320,327-28 (1961)]. In general, the broader the relevant market, the less likely it is that a firm will be found to possess monopoly power. The purpose of defining a relevant market is to identify those firms that could readily compete with the alleged monopolist if it charged monopoly prices. The relevant market has two dimensions: 1) the product market, wich is comprised of those firms that manufacture products which consumers regard as reasonable substitutes for the monopolist’s product; and 2) the geographic market, which is the geographic area where buyers can practicably turn for alternative sources of supply [Tampa Elec Co v Nashville Coal Co., 365 U.S. 320,327-28 (1961)]. 1. In the context of this case therefore, what becomes clear, is that one could make use of the classic definition of the relevant market in the context of the cellophane case [US v. du Pont (1956)], which was brought under section 2 of the Sherman Act and concerned, DuPont’s supply of the cellophane to the US market. It was clear that Du Pont produced about three-quarters of all cellophane sold in the USA. If the relevant market consisted only of cellophane then the Supreme Court would have accepted the DuPont monopoly. The defense argued, however that cellophane was only one of a number of products making up the flexible packaging materials market, which included among other things, wax paper, greaseproof paper and foil. This argument was broadly accepted by the Court. Acknowledging that every manufacturer is the sole producer of its own products but that the important point is control of the relevant market and this would be dependent on the availability of alternatives of buyers, specifically ‘whether there is a cross-elasticity of demand between cellophane and other wrappings. In the case, despite DuPont’s large share in production of a particular product, the Court accepted that its effective market share was much lower because of the high cross-elasticity of demand. In this case, given that Orange100 is part of the larger market, but has functions which could easily be fulfilled by product x,y, and z, would signify that there is competition within the market and orange100 is not the sole product fulfilling market requirements. This would mean therefore that the market falls outside the ambit defining a monopoly situation. Also, in defining the “relevant market” for Orange 100, one would have to take into consideration, also the fact that the dye itself can be used for photocopying as well expanding the scope of the product market, where Dyco does not have any major investment at all. Proof of monopoly power is not sufficient to establish a violation of s2. There must also be proof of unlawful conduct by the alleged monopolist. Courts have generally described the requisite unlawful conduct as “anticompetitive”, “exclusionary”, “predatory”, or “unreasonably restrictive”. In fact two broad categories of conduct are most often at issue in s2 litigation: a) Conduct that may violate other laws, for example, false or misleading advertising sham litigation, or violation of regulatory requirements, and b) Conduct that a firm would not rationally engage in but for its adverse impact on competition, such as predatory pricing, refusals to deal with a competitor or denial of access to an essential facility. Section2 as it stands after amendment is clear about the fact that there is an express prohibition placed on discrimination of prices which cannot find justification in terms of differences in manufacturing costs or logistical costs or cost disparities because of other reasons. To violate section 2 the seller must be engaged in interstate commerce and the effect of the price discrimination must be to substantially lessen competitive injury. In other words a seller is prohibited from reducing a price to one buyer below the price charged to that buyer’s competitor. In fact even the idea of putting on offer goods to various consumers at similar prices but with dissimilar deliverance preparations might be a violation of s2. Exceptions are duly made when the seller is able to justify the reasons for reduction in prices backed by demonstrations that the lower price was charged temporarily and in good faith. 2. In case, if Dyco’s cost of production for the dye were comparatively less than those of its competitors, there would be chances of a monopoly market, given that in such a scenario, the idea of low cost of production would automatically translate into costs of sales. This would mean therefore that logically there would be an increase in the market share that Dyco would hold given especially the fact that the potency of the Dyco product is cheap but agreeable for the purpose it is used. This would mean that in a scenario, where Dyco’s costs of production were to be low the scope of the company becoming a more dominant force in the market would undergo significant increase. This would still not make the market monopolistic as long as the reduction of costs is based on merit and not on nefarious motif. 3. In neither case would Dyco be considered a monopolist given the fact that in both cases, changes in pricing, in strategy and in cost movement is driven by market forces and internal issues of production and not by the need to create an artificial low base for price points of the dye in the market. Answer 3: The issue in the context of this case is that of conspiracy of price fixing. Given that he courts indicted Sweet Co, and made the company pay a fine of $250 million, means that there is an obvious problem associated with the manner in which sweet co dealt with its contemporaries where the issue of price was concerned. According to section 1 of the Sherman Act, “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal”. In the context of this case, the first indictment is being brought in under Section 4 of the Clayton Act, where it is stated, that, “"any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefore in any district court of the United States ... and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee." This provision creates a major inducement to sue because it means that a private plaintiff can obtain a damage award three times as large as the actual loss. Also in case the plaintiff is able to emerge victorious, the idea would be for the defendant to come up with the payments for the attorney’s fees. One of the main defenses that are available to sweet Co under the aegis of the Clayton Section t exist under section 15(b) of the Act, wherein it has been stated that any action that is taken toward the enforcement of any cause of act under section 15, 15a, or 15c of this title is supposed to be barred forever. In cases where the injunction action is brought forth four years after the act then it is non-applicable”. This would mean that in the context of the case it would become essential for the ones bringing in the injunction to prove injustice in cases over the past four years and not against the 10 years of the transactions that Sweet Co carried out with them. It would also have to proved in the context of this case whether, in the course of the action involved the ones that were responsible for the party's welfare and were representing the party in the context of a dispute, if they were found culpable of infringement of appropriate regulations, or court orders associating with sanctions for dilatory behavior or otherwise providing for expeditious proceedings; and whether such State or the opposing party, or either party's representative, engaged in conduct primarily for the purpose of delaying the litigation or increasing the cost thereof. Suit 2: While Clayton Act, section4 makes it clear that the court is supposed to award the State as monetary relief threefold the total damage sustained as described in paragraph (1) of this subsection, and the cost of suit, including a reasonable attorney's fee. If the court finds that the award of such interest for such period is just in the circumstances, when the Hart Scott Rodino Antitrust Improvement Act was passed, consumer advocates and their allies in congress thought they had an important new tool for combating price fixing. The supreme Court has over the years take much of the zing out of the antitrust suit conditions digging up one of its 1968 decisions (Honover Shoe Inc., v United States] to tell congress that it really did not do what it thought it did in passing the law. The High Court in its June 9 decision in the Illinois v Illinois case sad that later lower court decisions and the legislators were emphasizing the wrong parts of the 1968 case. The important thing to remember in this case is that it would only be the ones who were direct purchasers of the price-fixed goods that would be liable to sue for damages. In the context of this case therefore the ones that had purchased the sweetner directly would be liable to bring in a suit of class action for price fixing but those that bought the products in the indirect manner through purchase of the goods that were ultimately created by the manufacturers of sweets and syrups would not be liable to bring in an injuction against SweetCo in this context. Answer 4: One of the most interesting cases where the Court’s decision in the context of mergers and the position of monopoly accorded by mergers was the case of Brown Show Co and g R Kinney Co, where the crucial point of contention was that of defining the relevant market. Both firms involved were manufacturers and retailers of shows. The merger therefore had both horizontal and vertical aspects. Viewed in national terms, the effect of the merger on show manufactures was negligible; Brown made 4 per cent of US output and Kinney about .5 per cent. It was accepted therefore that the merger did not pose a threat to competition, in the manufacturing market. The case centered on the competitive effects in retailing. Here Brown either owned or controlled through franchising agreements about 1230 stores, while Kinney primarily a retailer, owned over 400 stores, but at the time in USA there were approximately 70,000 show outlets, of which 22, 000 were specialist show stores. Their determination of relevant market by the Supreme Court involved both a geographic and a product element. Geographically the Court determined that the market consisted of all cities with populations of 10,000 or more and their immediate surrounding area. However, it was the product definition which caused most controversy. It again referred explicitly to the cross-elasticity of demand. The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it-but then the court confused matters by adding that within this broad market, well defined sub markets may exist which, in themselves, constitute product markets for antitrust purposes the boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the sub-market as a separate entity, the product’s peculiar characteristics and uses unique production facilities, distinct prices, sensitivity to price changes and specialized vendors. Interestingly enough, there is also the instance of the Guidelines' mechanism that aim at dealing with probable delivery side reactions to an exercise of market power, which is also worth noting given that in coming up with a definition of the relevant product market, the Guidelines tend to place their focus unswervingly on demand-side substitution. This has direct links again with the reaction of the consumer with an rise in the price of a certain commodity. The idea in fact is that supply-side substitution answers to attempts that are aimed at an exercise of market power would be automatically considered in other aspects of the Guidelines that deal with the classification of companies in the applicable marketplace and the probability of novel entrance. This is automatically then attained by ensuring inclusivity amongst participants in defined market not only those firms presently producing products in the relevant market, but also those firms that are "uncommitted entrants." Section 3 of the Clayton Act provides that: "It shall be unlawful ... to make a sale ... of goods ... on the condition ... that the ... purchaser ... shall not use or deal in the goods ... of a competitor ... where the effect ... may be to substantially lessen competition or tend to create a monopoly...." This provision of the Clayton Act was passed in response to the Supreme Court's decision in Henry v. A.B. Dick & Co. (1912).  The antitrust law in the US states clearly that [Clayton Act Section 7, codified at 15 U.S.C. § 18]: "No person is also to take on the acquisition of, in a direct or indirect manner the entire or any portion of the stockpile or other divided resources... of the resources of one or more people that are party to commercial or in an commotion disturbing business wherein the impact of this acquisition might be able to in a substantial manner lead to lessening competition or the creation of a monopoly” In the context of this case, the idea is aimed at the creation of a horizontal merger that would increase market concentration by reducing the number of market participants, which could lead to a substantial reduction in the number of competitors (Schneeman, 2009). In this case, the merger would create a single firm with substantial control over the market enabling it to raise prices unilaterally, especially given that idea is aimed at the elimination of the firm’s nearest competitor. The 1992, Merger Guidelines describe a five step analytic process by which the federal enforcement agencies determise whether to challenge a horizontal transaction: 1. Defining the relevant market and determining the extent to which the transaction would increase concentration 2. Assessing whether the transaction could raise competitive concerns 3. Assessing whether entry by additional firms into the market would counteract these concerns 4. Considering whether the proposed transaction would likely result in other unachievable efficiencies; and 5. Determining if, in the absence of the merger the firm would fail In the context of this case, it would suffice to use the test that was provided by the court in United States b Philadelphia National Bank, where it announced the test of illegality as: “[A] merger which produces a firm controlling an undue percentage share of the relevant market and results in a significant increase on the concentration of firms in that market is so inherentky likely to lessen competition substantially that it must be enjoined in the absence of evidence showing that the merger is not likely to have such anticompetitive effects” In this case with the joining of GKB and Super the market share of the conglomerate would cross the 55 per cent mark with the nearest competitor holding just 15 per cent of the market. Also it would mean that there would be an added cost advantage that the two companies would get resulting in an increasing market share that would lead to the slow but sure elimination of many others, making entry of new participants impossible. This is the test that would need to form the basis of the case therefore that would block the merger. Answer 5: The first task in trying to prove that there was in place some kind of conspiracy where increasing the prices of the small battery in the joint manner, to weed out the smaller competition, one would have to establish first and foremost that the action taken by Durab, Allthere, and Batteron was concerted and not individual decisions.   To prevent under Section 1 of the Sherman Act, a plaintiff must establish a “contract, combination…or conspiracy” that unreasonably restrains trade. Section 1 does not ban sovereign act by a distinct entity irrespective of rationale or consequence on the contest. In a judgment the Supreme Court stated in fact that [Copperweld Corp v Independence Tube Corp., 467 US 752, 767-68]:   “The Sherman Act consists of basic distinction between concerted and independent action” the manner in which a firm conducts itself functions backed by s2 only and is not lawful when this becomes monopolistically threatening…Section 1 of the Sherman Act in contrast reaches unreasonable restraints of trade effected by “contract, combination…or conspiracy” between separate entities.   It must also be made clear in the context of this case, that given that proving concerted action is essential to the establishment of liability under antitrust laws, unduly vague allegations of concerted action would be automatically susceptible to dismissal. In the context of this case therefore, the complaint has to identify the co-conspirators and describe the nature and the effect of the conspiracy, although it is not subject to dismissal for a mere failure to identify all if the conspirators in the alleged conspiracy [Walker Distributors Co v Lucky Lager Brewing Co., 323].   That the parties to an agreement did not have identical motives, or that one party to the agreement was coerced to participate, does not negate the finding of an agreement for purpose of Section1, so long as the parties share a commitment to a common scheme [Perma Life Mufflers v. International Parts Co., 392 US 134 (1968)].   As an express agreement can, of course show concerted action, but formal contract is not necessary to establish that element. Particularly in the past half-century, there has been a struggle on the part of the courts to define the amount and the quality of proof required to support an inference of agreement and quality of proof that is required to support an inference of an agreement. Earlier Supreme Court decisions, such as Tobacco Co V United States defined agreements as “a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful agreement”. Later decisions established that such understanding mat be tacit and can arise without verbal communication. As one court stated, “[a] knowing wink can mean more than words” [Esco Corp v United States, 340 F. 2d 1000, 1007 (9th Cir. 1965)]. The requisite plurality of conduct can arise even when the parties expressly deny reaching an agreement, as when one party announced the price he intended to charge and declared that “he did not care what others did” [United States v Foley, 598 F. 2d 1323, 1322 (4th Cir. 1979)]. In Monsato Co v Spray Rite Service Corp, the Supreme Court established the modern formula under which the courts evaluate proof bearing on concerted action: “The accurate idea is that there must be proof to demonstrate the exclusion of a likelihood of autonomous action by parties. This means basically that there needs to be a undeviating or contingent substantiation which would be able to reasonably prove that the two involved variables made a cognizant pledge to a scheme which aimed at the achievement of an illegal purpose” Conspiracies can be proven either by direct or circumstantial evidence. Although, courts traditionally, recognized that “[o]nly rarely will there be direct evidence of an express agreement in conspiracy cases, direct evidence of conspiracies-such as videotapes of meetings among competitors or admission by participants-has become more common in recent years. Circumstantial evidence as to this element of the offense is nonetheless not just admissible but often dispositive. While there is a definite responsibility on the ones bringing in the injunction to gather evidence, the Supreme Court said in Mutsuhita Electric Industrial Co v Zenith Radio Corp: “[A]ntitrust law limits the range of permissible inferences from ambiguous evidence in a s1 case. Thus…conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy…to survive a motion for summary judgment or for a directed verdict, a plaintiff seeking damages for violation of s1 must present evidence that tends to exclude the possibility that the alleged conspirators acted independently… [a] plaintiff, in other words, must show that the inference of conspiracy is reasonable in light of the competing inferences of independent action or collusive action that could not have harmed. Citing its earlier decision in First National Bank v Cities Service Co, the Court in Matsuhitam identified two separate inquiries that are relevant to the issue: first, whether the defendant had any rational mtive to join the alleged conspiracy and second, whether the defendant’s conduct was “consistent with the defendant’s independent interest”. Both require a court to consider the nature of the alleged conspiracy and the practical obstacles to its implementation as well as the substantive offense being charged. Evidence that is probative of an agreement to terminate a distributor is not necessarily probative of an agreement between the manufacturer and the distributors to set prices at a particular level. When a conspiracy is economically implausible, a higher quantum of proof is necessary. Allegations of concerted action by competitors are based on a pattern of uniform business conduct which the courts refer to as conscious parallelism [Williamson Oil Co v Phillip Morris USA, 346 F.3d 1287]. In the case of Interstate Circuit Inc v United States the Supreme Court inferred that similar restraints were sufficient evidence for a fact finder to infer agreement. Again in, American Tobacco v United States, the Court again sustained a finding of conspiracy based on a pattern of otherwise unexplained parallel conduct. The evidence showed a course of improbable parallel conduct for which they were able to offer no economic justification. The current stand of the court is that the plaintiff must be able to demonstrate some plus factors in combination with conscious parallelism to support inferences of concerted action. Among the most important are those that tend to show that the conduct could be in the parties’ self-interests if they all agreed to act in the same way but would be contrary to their self interest if they acted alone. It is in keeping with this principle that the case stands again the three firms, given especially the fact that law of economics means that if a company had singularly raised prices there would automatically be a fall in markets share. The fact that all three increased their prices in tandem, in a well publicized manner, with no economic justification for doing so would mean that they are guilty in Sherman s1 case. Reference: Blecher, M.M., (1969). ‘Attempt to monopolize under Section 2 of the Sherman Act: “Dangerous Probability of Monopolization within the relevant market”. Geo Walsh Law review. 38(2). 215 Miller, L., Jentz, M. A., (2007). Business Law Today: The Essentials. Cengage Learning. pp683-687 Hildebrand, D., (2009). ‘The role of economic analysis in the EC competition rules’. Kluwer Law International. Pp81-82 ABA., (1980). Jury instructions in criminal antitrust cases, 1976-1980: A compilation. American Bar Association. Pp311 Wise, A, N., and Meyer, B. S., (1997). International sports law and business. Volume 1. Kluwer Law International.pp23-25 Jacobson, J. M., (2007). Antitrust law developments (sixth). American Bar Association. Pp966-970 Utton, M. A., (2003). Market dominance and antitrust policy. American Bar Association. Pp67-72 Schneeman, A., (2009). Law of Corporations and Other Business Organizations. Cengage Learning. p495 The Clayton Antitrust Act (1914). Retrieved December 21, 2010. < http://www.stolaf.edu/people/becker/antitrust/statutes/clayton.html> ABA Journal Jul 1977. Retrieved December 21, 2010. < http://books.google.co.in/books?id=S36mg1kC1Y4C&pg=PA918&lpg=PA918&dq=consumer+class+action,+price+fixing,+Clayton+Act&source=bl&ots=U-B6jnAEYX&sig=RzU2vfOBPOK4lPm1P2mlV3j8TJM&hl=en&ei=YX8QTeadD4OBhQf92-CSBw&sa=X&oi=book_result&ct=result&resnum=4&ved=0CDQQ6AEwAw#v=onepage&q=consumer%20class%20action%2C%20price%20fixing%2C%20Clayton%20Act&f=false> Pitofsky, Goldschmid and Wood, Trade Regulation, 6th edition, 2010 (University Casebook Series, Foundation Press) Read More