Midwest Truck Leasing Company and the North American Truck Leasing Association - Article Example

U.S.A. Antitrust Law: Q.1 The case of Midwest Truck Leasing (MTL) Company and the North American Truck Leasing Association (NATLA): United States antitrust law refers to a set of laws which were put in place to encourage marketplace competition while disallowing monopoly and unfair competition in business. In this regard, some actually refer to these laws as competition laws. In America, both the government agencies and private litigants engage the business of regulating competition using these laws with the aim to sustain market operations. It is important to point out that the antitrust laws are contained in the so called the Sherman Antitrust Act. This act was established Jul 2, 1890, with intention to lay the basis for the federal government to limit Cartel and monopolies’ through investigating and pursuing non compliance to the Act by business organizations. In order to be able to apply the provisions of Sherman Act, and therefore answer questions relating to this subject, we start by a brief review of the Act, in terms of its original formulation, purpose and application. This Act is made up of three sections: Both section I and II work to achieve the same goal, one of avoiding violation of the laws by businesses. Section I disallows inputs meant to achieve uncompetitive conduct in the market. Section II prohibits outputs that are inherently uncompetitive. Section 3 plays the role of spreading U.S. territories and the District of Columbia, requirements of section 1. Section 1: “Any agreement to come together to form a trust, or any form of collusion based on conspiracy, to restrain free competition in the market between states or with outside world, is declared to be illegal"(15 U.S.C. ch.1). Section 2: "Anyone who restricts free trade, or attempt to do so, or join or scheme with any other person or persons, to hog any part of the commerce relations among the several States, or with overseas nations, shall be deemed guilty of a felony " (15.USC. ch.2). The Act has associated elements of violation that have to be considered with regard to any particular case: “The three constituent elements of A Section 1 violation are: an accord, irrationally hold back competition and affecting business between states” Richter Concrete Corp. v. Hilltop Basic Resources, Inc., 547 F. Supp. 893, 917 (S.D. Ohio 1981). “For section 2 to be violated, there has to be an element of monopoly power which has not resulted from product superiority, business intelligence or historic accident, but was instead acquired and retained intentionally”, United States v. Grinnell Corp., 384 U.S. 563, 570-71, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966). Sherman Act was formed to prevent coming together of business units perceived to have a negative impact to competition. These laws oppose attempts by business organizations to raise prices artificially through restricting of either trade or supply. This therefore implies that if monopoly is attained by merit, it is not against the law. However, it is illegal for a monopolist to engage in any unfair practices aimed at creating a monopoly or artificially preserving his status. It has been argued that the primary purpose of the act is to provide protection to competition and the competitive ground, instead of protecting competitors. In Spectrum Sports, Inc. v. McQuillan, the U.S. Supreme Court maintained that the Sherman Act was meant to maintain a stable market environment for the public, rather than providing protection for trade from the operations of the market. In this regard, the law only targets any form of activity which negatively affect free competition. 'Spectrum Sports, Inc. v. McQuillan', 506 U.S. 447, 458 (Supreme Court 1993). However, this may not always be the sole consideration by the antitrust laws; In the European Union, antitrust laws mainly focus on competitor protection more than the consumers and efficiency in market operations, (Katalin 110). Having examined the background information regarding the Sherman Act, I now proceed to apply its provisions to the questions: For Question 1, in the case of Midwest Truck Leasing (MTL) company and the North American Truck Leasing Association (NATLA), I am required to assess if NATLA has reached any agreement that should be deemed per se illegal under section 1 of the Sherman Act, or if not, if it has reached any agreement that would be deemed unreasonable under the rule of reason review. A violation per se refers to one that does not need critical assessment of what would be the actual impact of a given practice to the market, or the driving motives of those involved in such practice. A violation per se strictly adheres to the (agreement, conspiracies or trusts in restraint of trade) elements of section 1. Per se violations consists of horizontal price fixing and horizontal market division elements. Therefore, it has been argued that a per se violation usually have tendency to restrict competition and reduce production. The rule of reason is also sometimes referred to as the test of total circumstances. It puts into consideration the motive and intent in making judgment as to whether there was unreasonable restraint to trade. Indeed motive and intent are requisite for prediction of future outcomes. To apply the rule of reason to establish the effect of a practice on competition, the court must evaluate critically the unique facts to the business, background information of the restraining and why it was applied. In light of the above, I observe that NATLA has not reached a per se illegal agreement under section 1 of the Sherman Act. This is because this case, does not meet strictly the requirements of section 1 of the Act as above. However, I observe that NATLA has reached unreasonable agreement under the rule of reason due to the following: NATLA was originally purposed to provide a complementary scheme whereby members would lease trucks on a full-service over-the-road basis. Their major competitors were the national truck - leasing companies, who own service depots all over the U.S. However, NATLA has imposed location and non-affiliation restrictions to the member companies, with intent and motive to severely limit over- the-road competition between them, thus unreasonably restraining competition. It is evidently so because for instance, NATLA members have been allowed to establish outlets under a different name at sites not authorized, yet trucks rented under such a name would not receive reciprocal service. Furthermore, even if the member were willing to forfeit that gain, the circumstances would still amount to a violation of NATLA rules hence the member would still risk being expelled. II. (A). What is the relevant market analysis in a Sherman 2 case? Assuming that Dyco’s production and distribution costs are not significantly different from those of X, Y, and Z, the market analysis in a Sherman 2 case would be as follows: To start with, it is necessary to note that under section 2, monopoly has been differentiated such that companies which become monopolies by virtue of merit can not be subjected to punishment by the Act. Instead, the Act applies to companies which willfully conspire and use prohibited practices to dominate the market. Under Sharman 2, the starting point would be to consider whether Dyco possess elements of market power or monopoly power. Market power refers to the ability of a business to exercise control over her prices, such that it can raise her prices higher than they would normally be in a competitive market. On the other hand, monopoly power refers to the ability for a business to exclude competition, alongside control of her price. Under Sharman 2, market power is therefore a constituent element of monopoly power, but market power in such case, has to be substantive enough and durable in order to yield monopoly power. Put differently, we need to establish whether a given firm has or is likely to have a high market share and whether the firm has created some entry limitations to her advantage in the market, in order to enjoy monopoly status. In this scenario, Dyco has no such tendencies. First, Dyco has no control over prices of her products. Secondly, Dyco has not created any entry barriers as already we know that there exists substitute products X, Y and Z among others and that the production and distribution costs are the same, so that Dyco can not possibly lower her prices below those of competitors, necessary to establish monopoly power. Again, Dyco’s market share is not so big than that of the competition, because we are aware that buyers in the photographic industry in which orange 100 sales exclusively, are relatively few. The fact that 80% of Dyco’s sales are handled strictly through independent jobbers and distributors of agricultural chemicals, and that is highly competitive serves to limit possibility of monopoly. (B) Would the analysis be different if Dyco’s production costs per unit of coloring potency were substantially lower than those of X, Y, and Z? Definitely, the analysis would change because if Dyco’s production costs per unit of coloring potency were substantially lower than those of X, Y, and Z, it would mean that Dyco would have the ability to lower her price below those charged by substitute products X, Y, and Z, hence Dyco would be in a position to sway market demand in her favor and therefore command a bigger market share which would potentially create monopoly power due to unfair competition ground. However, such monopoly power will not be punished under section 2, unless it is achieved through some misconduct or through forbidden practices. (C) In either case, does Dyco have monopoly power? Looking at case (A), one would argue that there is some element of monopoly power to extend that Dyco’s orange 100 is the only product used in manufacturing and producing photographic plates for commercial photographers. But this has only been achieved by merit and can not warrant any action under section 2. In case B, Dyco might be able to wield some monopoly power as already discussed above. But that would not necessarily subject Dyco to punishment under section 2 since monopoly power that is attained through knowhow advantage, prudence, or diligence is not illegal under section 2. (Wilberforce 312). Q.III You are the general counsel for litigation and antitrust at Sweet Co. In response to the three described actions, you have been asked to prepare a litigation plan detailing the company’s possible actions and defenses to the lawsuits. Analyze and discuss thoroughly, and state what you believe the Court would rule. To respond to these three actions, I begin by a brief discussion of the enforcement of the antitrust laws. Civil law suits can be instituted by the federal government through either the antitrust division of the US department of justice or the federal trade commission. On the other hand, suits enforcing both state and federal antitrust laws can be filed by state attorneys general (Hovenkamp 265). Another way of enforcement is usually by way of private civil suits. This can be instituted both in state and federal court. Both state and federal antitrust laws agree to impose three times, damages against those who abuse the antitrust laws. This action is aimed at promoting the enforcement of private lawsuits related to antitrust law. In applying this provisions, if a seller, violates antitrust law, and the jury holds that the seller’s actions generated a $1000 overcharge to the consumer, the consumer so injured will be compensated triple this amount, i.e. $3000. In the case Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 262 (1972), the US supreme court gave a summary of reasons why private antitrust laws were authorized: “Any form of non compliance with the antitrust laws heavily impacts on free-enterprise structure visualized by Congress. Both the antitrust legislation and strong competition are necessary for a free enterprise. Though there are other measures that could be used to punish non-compliance, including the option for violators being required to compensate the respective administrations for damages, congress did not apply them. Instead, Congress allowed individual suing for treble damages whenever antitrust violation by any business causes the individual a loss. Congress allowed this so as to encourage these persons to act as "private attorneys general." Having made this brief overview, I wish to consider the cases described above for Sweet Company. First, it is important to shade some light on class representation or class action lawsuits. These are law suits filed by individuals, group of individuals or a company, representing a larger group of colleagues/members injured in the same manner and therefore having the same legal claim (Whish 201). The reason for class lawsuit may be because affordability and practicability issues associated with individual lawsuit. A class representative avails himself as and when required by the court to answer questions or provide relevant information to the case on behalf of the group being represented. This is done with guidance of the group’s lawyers. Though not guaranteed, courts may sometimes enter order incentive awards to the class representative. Ordinarily, the class representative only obtains same relief for their injury as that obtained by the class (Rosenblum 339). It therefore follows that since the case against Sweet co. together with its two major rivals had been determined in court and Sweet co. fined, following their engagement in a worldwide conspiracy to fix prices of artificial sweeteners, the 3 private class lawsuits as described above are enforceable. As discussed above, I would advise Sweet Company to expect that the court will rule in favor of the litigants and that the company will be required compensate triple the damages incurred by the drink manufacturers and the consumers of sweet stuff in both the federal court and state law court cases. Q.IV. You are an attorney in the Antitrust Bureau of the Tazland Attorney General’s Office. You have been asked to evaluate the proposed merger under the Horizontal Merger Guidelines as well as under existing United States Supreme Court decisions. Include the best arguments the State of Tazland could make to support its challenge of the proposed transaction, as well as the likelihood that the challenge will succeed at least in the preliminary injunction stage. To be able to address this particular case, I start by a brief review of the merger guidelines. Merger guidelines established in 1992 maintain that there are many horizontal mergers and acquisitions which help the competition and therefore yield positive result for consumers. Therefore the merger guidelines aim at preventing bad interference with the competitively neutral or valuable mergers. Important questions covered by the merger guidelines in order to identify potential dangers of a particular merger include: Whether the merger has potential to greatly increase concentration and produce a concentrated market, if the proposed merger is likely to cause adverse competitive effects, whether entry seems sufficient to frustrate anticompetitive conduct, if the merger is likely to lead to improved business efficiency which the merger partners could not attain using any other formula, and if either party is likely to fail, and loose its assets in the market if the merger fails to be effected (Townley 218). In application of section 7, the Supreme Court lays emphasis on market share data and the history of increasing concentration through merger to condemn proposed acquisition. In the dispute between Brown Shoe Co. v. United States, 370 US 294 (1962), the court stated that the following factors must be looked into in order to assess the significant impact of a given merger to competition: It was maintained that any merger was to be assessed with reference to the industry itself. It should be established clearly whether the industry is currently concentrated or fragmented, if there has been seen or perceived any domination elements in the industry’s recent past, the mode of share distribution and if it has been fair, ease of entry and exit in the industry and more important, Market share figures for the leading firms in the industry. Back to my Tazland case, for the state to be able to challenge the proposed merger, it will first apply the requirement of the law that prior to consummating a merger, the companies involved need to first notify the Federal Trade Commission and the Department of Justice's Antitrust Division for review of the proposed merger, to determine potential danger as discussed in the above review. This will take 15-30 days, but the regulators may ask for more time to evaluate more information. We are off course assuming that the process is beyond this level and information has been collected and analyzed and so the state has to support its case to challenge the merger. The proposed merger between Super and GBK when analyzed in the context of our above discussion, has an obvious effect to give them substantial market share in the industry (55%) as it is now, which will give them great market power. More so, the proposed combination may help the parties attain substantive technological improvement leading to more benefits that would not be realized without the merger. Indeed it has been pointed out that, their combination will mean they will account for 55% of total propane sales in Tazland, that it will lower their joint operating costs, lower their joint production costs, allow for more complete utilization of GBK’s storage facility, and facilitate long-overdue reductions in their respective work forces and generally, will better enable them jointly to bid for long-term contracts in Tazland as well as in several neighboring states. On the other hand, none of the two companies is likely to fail, or loose its assets in the market if the merger fails to be effected. The state must therefore go ahead and challenge the proposed merger. Q.V. To answer these questions, a few things need be assessed in these particular circumstances: There is need to pursue complete investigation into this case for the following reasons; First, for a violation to have occurred (conspiracy to fix prices), we need to establish if there was an agreement by the parties in the small battery industry to fix price. Indeed we know that horizontal price fixing is the Antitrust’s capital crime. Any agreements by competitors (both buyers and sellers alike) with regard to prices for products are illegal per se regardless of the motive behind the actions. However, some few exceptions have been made which the Supreme Court decisions have found to be beyond the scope of per se rule, and therefore such are subject to the rule of reason (Harrington 179). For the Sherman rule to apply there must be an element of agreement, evident or construed through logical inferences inherent in the case situation. As observed by Richard, In circumstances where rival firms behave or act in the same way, and if such action would not be taken in the ordinary circumstances without having agreed, then it is easy to read some conspiracy in such behavior. If it can be established that there has been a lot of communication and sharing between the parties, it is more likely that the parties would reach an agreement. The Supreme Court has therefore held that in the event that one firm holds discussions aimed at increasing prices in the industry, and competitor firms go ahead to increase prices within a short period, then this will serve to provide evidence of conspiracy. It would be important to reduce or desist from these kinds of practices. (P. 398). Following the above discussion, it would be necessary that complete investigation be carried out to establish the facts. On the other hand, one would argue that such process would be unnecessary because the actions of these competitors represent Resale Price Maintenance (RPM) which may be allowed by law because manufactures use it to enhance consumer welfare. If it has to be investigated however, then rile of reason need be applied instead. We do not have facts as yet to establish that these companies’ actions are based on need for Resale Price Maintenance (RPM). Works Cited “Brown Shoe Co. v. United States”, 370 U.S 294 (1962), 15 .U.S.C. ch.1, (2005). 15. U.S.C. ch2, (2004). Chris Townley, (2009). Article 81 EC and Public Policy, Hart Publishing. Harrington, Joseph E. (2008)."Antitrust enforcement", The New Palgrave Dictionary of Economics, 2nd Edition. “Hawaii v. Standard Oil Co. of Cal”, 405 U.S. 251, 262 (1972), Hovenkamp, Herbert (1985). "Antitrust Policy after Chicago". Michigan Law Review (The Katalin Judit (2005). Competition Law and Consumer Protection (Hardback) Kluwer Law International. Michigan Law Review Association) 84 (2): 213–284. doi:10.2307/1289065. http://jstor.org/stable/1289065. Richard A. Posner, (1999).Antitrust law. University of Chicago Press, 2001 Richter Concrete Corp. v. Hilltop Basic Resources, Inc., 547 F. Supp. 893, 917 (S.D. Ohio 1981) Robert H. Rosenblum – (2003).Investment company determination under the 1940 act: exemptions ... - Page 339 'Spectrum Sports, Inc. v. McQuillan’’, 506 U.S. 447, 458 (Supreme Court 1993). “United States v. Grinnell Corp”. 384 U.S. 563, 570-71, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966). Wilberforce, Richard, Campbell Alan and Neil Elles (1966) The Law of Restrictive Practices and Monopolies, 2nd edition, London: Sweet and Maxwell LCCN 66-070116 Whish, Richard (2003). Competition Law, 5th Ed. Lexis Nexis Butterworths Read More