Midwest Truck Leasing Company vs North American Truck Leasing Association - Case Study Example

U.S.A. Antitrust Law In Midwest Truck Leasing (MTL) Company vs. North American Truck Leasing Association (NATLA), for us to answer the question as to whether NATLA has reached any agreement that should be deemed per se illegal under section 1 of the Sherman Act, or if not, discuss if NATLA has reached any agreement that would be deemed unreasonable under the rule of reason review, let us start by understanding the theoretical background of the Sherman Act in relation to competition laws. Antitrust laws were applied in the U.S with the prime aim to curb monopoly behavior and unfair competition and thus advocate for a market place with fair competing conditions. The antitrust laws were used mainly to regulate the working of the market. Both the private businessmen and government officials applied them. The U.S competition laws were enacted in July 1890 and were embodied in the Sharman Act. All business organizations were required to adhere to the provisions of the Sharman Act. The federal government was charged with the responsibility to investigate and take action against any business organization that would fail to comply with the antitrust laws. This was to help ensure that no new cartels and monopolies would come up. It is necessary to first understand the content of the Sharman Act and the purpose for which it was created. This will put us in a better position to refer to the Act’s provisions in responding to our questions in point. The period preceding development of the U.S antitrust laws was characterized by big corporations that would form trusts with intention to hide the identity of their operations which largely turned out to be monopolistic in nature. The Sharman Act comprises of three sections, two of which state as follows: Section 1 state; “if business partners agree to unite, collude or conspire to introduce restrictions in the market operations between nation states or with the foreign nations, such practice is illegal and if found guilty, the person shall be fined” (15 U.S.C. ch.1). The aim of section 1 is to disallow any practice or use of any means that would tend to limit free market competition. Section 2 state; “ If anyone is involved in monopoly, or tries to engage in monopoly, or teams up with any other person or group to limit free business between states or with nations abroad, such a person will be guilty of a felony and is subject to punishment by fine”, (15.USC. ch.2). The purpose of section 2 is to curb against results that are attained through uncompetitive practice. Our major focus will be on these first two sections since section three mainly serves to expand requirements of section 1 to U.S territories and the District of Columbia. Other legislations were later developed by Clayton and Robinson respectively to widen the coverage of the Sherman Act by adding what was deemed necessary to be included, but was missing in the Sherman Act. Clayton added; mergers and acquisitions, deals uniquely associated with particular business, restrictive tendencies and buyer price discrimination. Robinson added legislation to prohibit attempts by manufacturers to discriminate potential distributors. Below, we explore the elements that constitute violation of the Sharman Act. In the event that there is an agreement, and if this agreement limits business unnecessarily hence interfering with trade between states, then section 1 of the Sherman Act is said to be violated. Richter Concrete Corp, vs. Hilltop Basic Resources Inc.547 F. Supp. 893, 917 (S.D. Ohio 1981). On the other hand, if a business entity has got exclusive power in the market, and if such power does not accrue naturally through business growth and competitive advantage, but is consciously acquired through uncompetitive practice, section 2 is said to be violated. United States v. Grinnell Corp., 384 U.S. 563, 570-71, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966). Under the Sherman Act, any practices which purely agree with the section 1violation elements as stated above are said to be violations per se. Such behavior has inherent elements flat price fixing and parallel market segmentation. They hinder free competition and thus reduce productivity. Under per se rule, reference is not made regarding the consequences or the original intention of the practice. On the other hand, the rule of reason seeks to establish the motive of the action and related consequences. With rule of reason, all positions and facts are analyzed in detail to determine the possible impact an action has on the operation of the market. The original purpose for the antitrust laws of America was to regulate market operations to allow free competition devoid of mergers that would create monopoly and infringe on competition. Business organizations were forbidden to engage in supply restriction activities with intention to either artificially raise prices or remain in control of the market. However, if monopoly power was a result of fair business practice, it would not be rendered illegal. Put differently, the Act aimed at establishing and maintaining level playing field instead of cushioning business rivals. 'Spectrum Sports, Inc. v. McQuillan', 506 U.S. 447, 458 (Supreme Court 1993). With the above theoretical background, let us go back to our case of Midwest Truck Leasing (MTL) Company and the North American Truck Leasing Association (NATLA). As to whether NATLA has reached any agreement that should be deemed per se illegal under section 1 of the Sherman Act, my answer is No. I did not find violations which would strictly concur with the requisite violation elements for section1as we earlier on stated. I haven’t observed evidence for horizontal price fixing which would be a requisite element for a violation per se. This is because we are told that though, NATLA members are under obligation to service and repair trucks of other members, and NATLA does not regulate the price for such services. Assessed under the rule of reason, I observe that NATLA has indeed entered unreasonable agreement. NATLA was established to open a procedure outline to enable its members to let out trucks over-the-road on a full-service foundation. Considering the national truck - leasing their major rival, NATLA was to be prepared for tough competition in the market since these competitor companies owned service depots all over the U.S. The location and non-affiliation restrictions imposed by NATLA to the member companies are intended to completely restrict over- the-road competition between them hence unreasonably limiting free competition. By allowing her members the freedom to start up outlets in different names in unauthorized locations, but refuse to grant reciprocal service to the trucks that would be rented under these names is a pointer to fact that NATLA has no goodwill for fair competition. The motive is to limit opening of such new companies. We have been told that there is no “legal” way a NATLA member can start an outlet licensed by another truck-leasing enterprise that operates on full-service mode like NATLA. Whichever way, such a member company will end up violating NATLA rules hence be expelled, even if the member would opt to forfeit the reciprocal service benefit. In a Sherman 2 case, we want to consider the relevant market analysis in the circumstances of the case pertaining to Dyco. Assuming that Dyco’s production and distribution costs are not significantly different from those of X, Y, and Z, we need to assess if there is possibility that Dyco would have monopoly in the market. Even if Dyco would have monopoly power, section 2 would only apply if such monopoly is attained through conspiracy and intentional uncompetitive practice. If the advantage is attained through merited growth and development of business, Sherman 2 will not be deemed violated, (Pitofsky, 2010). If Dyco would be able to control its prices, such that it could increase the prices beyond the normal market price at any given time, it would be deemed to have market power. If Dyco were able to limit rivalry other than control the market price, it would be said to possess monopoly power. Both monopoly power and market power are elements that one would look for under Sherman 2 case. They are not the same. Market power is a factor required for monopoly power to exist. Other than market power, we need to assess if Dyco has or is likely to enjoy bigger market share and therefore be able to attain monopoly. We also need to assess if Dyco might have made it difficult for other firms to enter the industry, so that Dyco remains dominant in the market. Having made these considerations, I found that Dyco has not pursued any of the above practices. I learned that Dyco is not able to control her product’s prices. There is no any evidence to the effect that Dyco has made entry into the industry difficult. Since X, Y and Z are substitute products to orange 100, and given that these companies’ costs are the same, any price decision must be consultative. Since 80% of Dyco’s sales are handled strictly through independent jobbers and distributors of agricultural chemicals, it becomes even harder for Dyco to possibly have monopoly power under this arrangement. If Dyco’s production costs per unit of coloring potency were substantially lower than those of X, Y and Z, a different analysis will emerge altogether. In Such circumstances, it would imply that Dyco will be able to influence prices in the market without reference to her rivals. For instance, Dyco may choose to lower prices below to a point where competition can not manage. X, Y and Z would thus decide to hang on and make losses, or quit altogether. Dyco would then raise prices high above what they would have been in a competitive market. It is such monopoly power and unfair practice that provisions of Sharman 2 was meant to check. To determine if Dyco has monopoly power in either case above, I consider the individual facts for each case. In the first scenario, the costs of production and distribution for Dyco and her competition are the same. This means that Dyco is not in a position to influence market prices independently and therefore has no monopoly power under these conditions. Even if Dyco’s orange 100 is the only product that has been preferred for use in manufacturing and producing photographic plates for commercial photographers, it does not amount to monopoly power punishable under Sherman 2, because it has been attained through business merit as opposed to unfair competition. In the second scenario where the production and distribution costs of Dyco are lower, it is possible that Dyco will have monopoly power. If Dyco decides to squeeze her competitors out of the market through price cuts, her market share will grow substantially. Dyco can then raise prices high above what they would be in a competitive market. As the general counsel for litigation and antitrust at Sweet Co, my duty is to prepare a litigation plan detailing the company’s possible actions and defenses to the lawsuits regarding the three lawsuits described against Sweet Co. I will examine the details of the case facts and advise what I believe the Court would rule. It is important to understand the theoretical framework of the legislation before applying it to these cases. Particularly, we explore how the antitrust laws are supposed to be enforced. Antitrust laws in America are enforced in various ways. A civil law suit can be filed in Court by the Federal government through the antitrust division of the US department of justice or the federal trade commission. The state Attorneys general is also empowered to file suits enforcing both state and federal antitrust laws. The other way in which the antitrust laws are enforced, and which is of our basic interest for the purpose of this paper is to do with private civil suits. Private civil suits can be brought either in state or federal Court. In both Courts, the law provides for imposition of three times, the damages against those who break the antitrust law. The main reason for this provision was to advocate for private civil suits in which case, the people are encouraged to assume the role of "private attorneys general." The treble damages rule means that a seller who breaks antitrust law, is found guilty by the jury to have caused a $4000 overcharge to the consumer, the seller will be required by the law to compensate treble damages to the injured consumer. Thus the consumer will be compensated triple this amount, i.e. $12000. The example of a case in which the US Supreme Court applied the option of treble damages compensation to private civil suits was that of the Standard Oil Company. Every act which violates antitrust law significantly affects free-business framework that was visualized by Congress. Clearly, both antitrust legislation and strong competition are essential for a free enterprise. Even if there are other measures that could be used to punish non-compliance, including the option for violators being required to reimburse the respective administrations, congress did not apply them. Instead, Congress allowed individual suing for treble damages whenever an individual suffers loss due to irresponsibility on the part of the business involved. The aim of Congress was to encourage these persons to assume the role of private attorneys general, Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 262 (1972). In view of the foregoing discussion, I am in a position to apply the facts to consider the cases described for Sweet Company. Perhaps the question one would ask is whether class representation is allowed in private civil suits and what the implications are with regard to this. Class representation refers to a situation in which a suit is filed by an individual, group of individuals or a company, to represent a larger group of persons injured in the same manner and thus fronting the same legal claim. This often happen when the cost of filling the suits too high for an individual or if it is deemed too complicated to approach the suit individually. In such a scenario, a class representative may perform the role of informing the Court on matters of the case on behalf of the group. The group lawyer gives legal guidance to the class representative while responding to any Court requirements. Any compensation to the class representative is same to that of the group except where the courts may sometimes enter order incentive awards to the class representative. I believe the Court will rule that the company engaged in a worldwide conspiracy to fix prices of artificial sweeteners. A case determined in Court earlier found that Sweet Co. was guilty and was fined $250 million. Therefore Sweet Co. will be required to award treble damages to the litigants in all the three cases described against it by the drink manufacturers and the consumers of sweet stuff in both the federal court and state law court cases. Being the Attorney in the Antitrust Bureau of the Tazland Attorney General’s Office, my role is to evaluate the proposed merger under the Horizontal Merger Guidelines as well as under existing United States Supreme Court decisions and Include the best arguments which I believe the State of Tazland could make to support its challenge of the proposed transaction, and the possibility that the challenge will succeed at least in the preliminary injunction stage. The Merger guidelines were enacted in 1992 with an aim to curb dangers related to mergers while at the same time, protecting those mergers that are deemed neutral and necessary in competition. It has been argued that all mergers are not dangerous. Some of them are meant to strengthen competition and can not be disallowed. Merger guidelines established a framework in which various factors are analyzed to establish if coming together of businesses is likely to be harmful to market competition. These include the likelihood of a merger to generate market concentration, the ability of a merger to affect entry into the industry and cause anticompetitive behavior, the possibility of a merger to yield some benefits to trade which would not be realized without the merger, evidence that one of the partners to the merger may not survive in the market without the merger and thus stand to lose her assets if the plan to combine does not materialize (Townley, 2009). The proportion of the market held by a particular firm, together with the facts related to market concentration in the industry are the primary factors which inform the Supreme Court decisions when applying provisions of section 7 to reject proposed takeover. As it was maintained in the dispute of Brown Shoe Co. v. United States, 370 US 294 (1962), a merger need be evaluated with reference to the industry itself to establish if the industry is currently concentrated or fragmented, if there has been seen or perceived any domination history in the industry, share distribution patterns, if there are any limitations to entry in the industry and the amount of shares held by the top firms in the industry. Following the above review, we can now discuss reasons why the state of Tazland should challenge the proposed merger. The laws requires any companies intending to form a merger to notify the Federal Trade Commission and the Department of Justice's Antitrust Division for review of the proposed merger, with aim to establish if there is any potential harm to competition in the industry. The review takes 15-30 days, after which the regulators may ask for extra time to assess more information. For the purpose of this paper, let’s assume that the process has successfully passed this level and information has been collected and analyzed. What remains is for the state to support the decision to oppose the merger. The state has sufficient reason to challenge the proposed merger because it is likely to generate monopoly power. Indeed, if the proposed merger between Super and GBK is considered in the context of earlier discussion, the new business unit stands to gain substantial market share in the industry (55%) as it is now, meaning that the merger will also gain great market power. More so, this combination will create technical efficiencies which Super and GBK could not reasonably achieve using any other formula other than the merger. As we have read in facts of the case, alongside guarantying 55% of the total sales of propane in Tazland, the proposed merger will reduce their joint production and operating costs, enable 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. Finally, the State can also challenge the proposed merger on grounds that none of the two companies is likely to fail, or loose its assets in the market if the merger fails to materialize. As a member of the team assigned to evaluate the facts related to the situation in the small battery industry my role is to determine whether further investigation is warranted, set forth the best arguments in favor of pursuing a complete investigation of this conduct as an antitrust violation, and the best arguments against doing so, indicate whether I find any of the facts provided above to be significant, one way or the other, and explain why, then discuss any significant facts about the conduct of the industry that I don’t have, but will need to complete the evaluation. In order for the Sherman Act to be applied, it has to be proved that there existed some form of agreement, or that it was bound to happen so considering the circumstances of that particular time. Horizontal price fixing is a capital offense in the face of antitrust law. Any agreements by trade rivals (buyers or sellers) pertaining prices for products are per se unlawful regardless of the intentions for pursuing such options. In some rare cases where the Supreme Court finds the decision to be beyond the scope of per se rule, exception is usually permitted, putting to use the rule of reason instead, (Harrington, 2008). Richard Postner argued that each time business rivals behave in a similar manner, and thus pursue a similar course of demeanor which would not customarily be taken in the absence of some prior agreement; it can be deduced that there is conspiracy. Further more, if any considerable information exchange or transactions can be traced to have been carried out by the rival firms, there will be a possibility for an inherent agreement. Thus the Supreme Court has stated that if a particular firm holds any discussions relating to prices and intention to raise the prices and it is found that within a few days, competitors in the industry implement price increase in the manner that was discussed by the former, such is clear evidence for agreement. It is therefore necessary to be cautious and reduce or avoid these kinds of practices, (Posner, 1999). In view of the foregoing theoretical assessment, I suggest that complete investigation be done in the case of the small battery industry so that full facts relating to the case can be established and considered. This is because it is likely that there was a prior agreement to raise the prices since Batteron and Allthere announced similar wholesale price increases (10% for most batteries, 12% for size D), only two days after interview of Durab CEO was reported in the January 24 edition of the Consumer Electronics Daily. This was more of a conspiracy to fix prices and need be investigated. Having considered the circumstances of the small battery industry, one would argue against carrying out an investigation in line with antitrust law, since the actions of these competitors might have been driven by desire to maximize consumer welfare. This concept is also known as Resale Price Maintenance and is recognized by the by law. I do not have sufficient information at hand to determine the motive behind the price increase decision in the small battery industry. As discussed above, the actions of these firms might have been premised on Resale Price Maintenance. I would require such information to inform my analysis of this case. References 15 .U.S.C. ch.1, (2005). 15. U.S.C. ch2, (2004). Brown Shoe Co. v. United States 370 U.S 294 (1962), 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), Pitofsky, Goldschmid and Wood (2010), Trade Regulation, 6th edition, (University Casebook Series), Foundation Press; 6 edition (March 26, 2010). 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). Read More