The Sherman Antitrust Act of the United States of America - Case Study Example

Issue: Whether an exclusive license from Gene/Australia to USB for low carb technology will result in antitrust problem. Analysis: The Sherman Antitrust Act of the United States of America which is one of the relevant laws in this case, provides that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among several states, or with foreign nations, is declared to be illegal (codified in 15 U.S.C., sec. 1). The same Act also provides that "every person who shall monopolize, or combine, or conspire with any other person or persons, to monopolize any part of the trade or commerce among several states, or with foreign nations, shall be deemed guilty of a felony [] (codified in 15 U.S.C., sec. 2). On the other hand, the Clayton Antitrust Act, another antitrust law of the United States of America, prohibits "exclusive dealings", "mergers or acquisition" if these acts substantially lessen competition (15 U.S.C., secs. 14 and 18). The US antitrust law refers to the body of laws that make illegal or unlawful certain business practices deemed to hurt businesses or consumers, or both, or violate business ethics. These include anti-competitive behaviors such as monopoly, restraint of trade and commerce, and unfair business practices like exclusive dealings, mergers, and acquisition and other practices that lessen business competition or harm the economy. In order to determine whether a corporate action or conduct is anti-competitive and thus prohibited by the antitrust law, two methods can be applied: the per se rule and the rule of reason. Under the per se rule which was utilized in the Sherman Antitrust Act, a corporate conduct is anti-competitive if is overwhelmingly harmful to the business or to the economy like horizontal price fixing or territorial division agreement. It does not require further evidences since it is evident on the face of the agreement itself. The rule of reason on the other hand, utilized in the Clayton Antitrust Act, requires the plaintiff to prove that the agreement caused economic harm in addition to proving that the defendant acted as charged. Merger is most likely the type of transaction that Awesea will offer in the case at hand. A merger is considered when both CEO's agree that joining together is in the best interest of the companies, as in the increase of sales but cutting the cost of operational expenses. The law on merger in relation to antitrust law is governed under section 7 of the Clayton Antitrust Act. It was further strengthened by the Celler-Kefauver Amendments of 1950 and the various merger guidelines issued by the US Department of Justice. Said laws modified the Sherman Antitrust Act where a mere merger is a violation of the antitrust law as a method of promoting monopoly (Sec. 1). At present, any challenges in the legality of mergers are decided using the rule of reason, that is, the plaintiff can only prevail upon proving to the court that the defendants are doing something which can bring substantial economic harm. The Clayton Act also allows the Federal Trade Commission and the Department of Justice to regulate all mergers and gives the government discretion whether to approve a merger or not. Another law, the Hart-Scott-Rodino Antitrust Improvement Act, provides in summary that before a certain merger can close, both parties must file a "Notification and Report Form" with the FTC and the Assistant Attorney General in-charge of the Antitrust Division of the Department of Justice so that the regulatory bodies can assess whether the proposed transactions violate the antitrust law of the US. Applying the rule of reason under the Clayton Act, when a company merges or acquired another company in order to promote its product in a certain country or to increase it sales, said transaction lessens competition, thus violates the antitrust law. The said fact is supported by various decided cases by the US Supreme Court which still are in effect today. One case is US v. Falstaff Brewing Copr., et. al., 410 U.S. 526. In this case, respondent Falstaff, the Nation's fourth largest beer producer, which was desirous of achieving national status, agreed to acquire the largest seller of beer in the New England market rather than enter de novo. The District Court dismissed the Government's resultant suit charging violation of section 7 of the Clayton Act, finding that entry by acquisition, which the court found was the only way that respondent intended to penetrate the New England market, would not result in a substantial lessening of competition. On appeal, the Supreme Court said that the District Court erred in assuming that, because respondent would not have entered the market de novo, it could not be considered a potential competitor. The court should have considered whether respondent was a potential competitor in the sense that its position on the edge of the market exerted a beneficial influence on the market's competitive conditions. Another case is Federal Trade Commission v. Procter and Gamble, 386 U.S. 568. Procter & Gamble (Procter), a large, diversified manufacturer of household products, acquired in 1957 the assets of Clorox Chemical Co., the leading manufacturer of household liquid bleach, and the only one selling on a national basis. Clorox had 48.8% of the national market, with higher percentages in some regional areas. Procter is a dominant factor in the area of soaps, detergents and cleaners, with total sales in 1957 in excess of a billion dollars, and an advertising budget of more than $80,000,000, due to which volume Procter receives substantial discounts from the media. The Supreme Court Held that the merger might have anti-competitive effects on the light of section 7 of the Clayton Act. It said that in this oligopolistic industry, the substitution of the powerful acquiring firm for the smaller but dominant firm may substantially reduce the competitive structure of the industry by dissuading the smaller firms from competing aggressively, resulting in a more rigid oligopoly with Procter the price leader. Lastly, in the leading case of Standard Oil Company of New Jersey, et. al v. The United States, 221 U.S. 1, the Supreme Court said that the unification of power and control over a commodity such as petroleum, and it products, by combining in one corporation the stocks of many other corporations aggregating a vast capital gives rise, of itself, to the prima facie presumption of an intent and purpose to dominate the industry connected with, and gain perpetual control of the movement of, that commodity and its products in the channels of interstate commerce in violation of the Anti-trust Act of 1890, and that presumption is made conclusive by proof of specific acts such as those in the record of this case. Conclusion: Based from the analysis, exclusive license from Gene/Australia to USB for low carb technology will result in antitrust problem, as it will lessen competition in the beer market place applying the rule of reason under section 7 of the Clayton Antitrust Act. References Federal Trade Commission v. Procter and Gamble (386 U.S. 568). Retrieved on February 20, 2009 at Standard Oil Company of New Jersey, et. al v. The United States (221 U.S. 1). Retrieved on February 20, 2009 at US v. Falstaff Brewing Copr., et. al. (410 U.S. 526). Retrieved on February 20, 2009 at Read More