PowerPoint Slides to Accompany
CONTEMPORARY BUSINESS AND
ONLINE COMMERCE LAW
6th Edition
by Henry R. Cheeseman
Chapter 33
Antitrust Law
Copyright © 2009 by Pearson Prentice Hall. All rights reserved.
Antitrust Laws
A series of laws enacted to limit
anticompetitive behavior in almost
all industries, businesses, and
professions operating in the United
States.
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Federal Antitrust Laws
 Sherman Act of 1890
 Clayton Act of 1914
 Federal Trade Commission (FTC) Act of
1914
 Robinson-Patman Act of 1930
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Antitrust Enforcement
 The federal antitrust statutes are broadly
drafted to:
reflect the government’s enforcement policy
 allow the government to respond to economic,
business, and technological changes

 Each administration adopts an enforcement
policy for antitrust laws.
 Antitrust laws are enforced more stringently
at some times than at other times.
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Antitrust Penalties
 Federal antitrust laws provide the
following penalties:

Criminal sanctions

Civil penalties

Private civil actions

Effect of a government judgment
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Section 1 of the Sherman Act:
Restraints of Trade
 Prohibits contracts, combinations, and
conspiracies in restraint of trade
 To violate Section 1, the restraint must be
found to be unreasonable under either of
two tests:
Rule of reason
 Per se rule

 Requires the concerted action of two or
more parties
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Rules to Determine Lawfulness of
a Restraint
Rule of Reason
 A rule that holds that
only unreasonable
restraints of trade
violate Section 1 of
the Sherman Act
Per Se Rule
 A rule that is
applicable to those
restraints of trade
considered inherently
anticompetitive
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Horizontal Restraint of Trade
Competitor
No. 1
Agreement
to restrain trade
Competitor
No. 2
A restraint of trade that occurs when two or more
competitors at the same level of distribution enter
into a contract, combination, or conspiracy to
restrain trade.
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Horizontal restraints of trade include:
 Price-Fixing – occurs where competitors in the
same line of business agree to to set the price of the
goods they sell. A per se violation.
 Division of Markets – occurs when competitors
agree that each will serve only a designated portion
of the market. A per se violation.
 Group Boycott – occurs when two or more
competitors at one level of distribution agree not to
deal with others at another level of distribution.
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Group Boycott by Sellers: Agreement
Not to Deal With a Customer
Seller
Competitor
No. 1
Agreement
not to deal with
a customer
Seller
Competitor
No. 2
Boycotted
Customer
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Group Boycott by Purchasers:
Agreement Not to Deal With a Supplier
Boycotted
Supplier
Purchaser
Competitor
No. 1
Agreement
not to deal with
a supplier
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Purchaser
Competitor
No. 2
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Vertical Restraint of Trade
 Occurs when two or more
parties on different levels
of distribution enter into a
contract, combination, or
conspiracy to restrain
trade
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Supplier
Agreement to
restrain trade
Customer
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Forms of Vertical Restraint (1 of 2)
 Resale Price Maintenance (vertical price-
fixing) – occurs when a party at one level
of distribution enters into an agreement
with a party at another level to adhere to a
price schedule that either sets or
stabilizes prices.

A per se violation of Section 1 of the Sherman
Act
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Forms of Vertical Restraint (2 of 2)
 Nonprice Vertical Restraints – are
unlawful under Section 1 of the Sherman
Act if their anticompetitive effects
outweigh their pro-competitive effects.
Include situations where a manufacturer assigns
exclusive territories to retail dealers, or
 Limits the number of dealers that may be located in a
certain territory

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Defenses to Section 1 of the
Sherman Act (1 of 2)
 Unilateral Refusal to Deal
 A unilateral choice by one party not to deal
with another party
 This does not violate Section 1 of the
Sherman Act because there is no concerted
action with others
 This rule was announced in United States v.
Colgate & Co.
 Often referred to as the Colgate doctrine
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Defenses to Section 1 of the
Sherman Act (2 of 2)
 Conscious Parallelism
 Occurs when two or more firms act the same
but without concerted action
 This does not violate Section 1 because there
has been no concerted action
 Noerr Doctrine
 Two or more parties may petition the
government to enact laws or to take other
action.
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Section 2 of the Sherman Act:
Monopolization
 Prohibits the act of monopolization as well
as attempts and conspiracies to
monopolize

Can be violated by the conduct of one firm
 The following elements are necessary to
prove a defendant in violation of Section 2:
Relevant market
 Monopoly power
 Act of monopolizing

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Defining the Relevant Market
 Relevant product or service market –
includes substitute products or services
that are reasonably interchangeable with
the defendant’s products or services.
 Relevant geographical market – the area
in which the defendant and its competitors
sell the product or service.
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Monopoly Power
 The power to control prices or exclude
competition
 Measured by the market share the
defendant possesses in the relevant
market
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Willful Act of Monopolizing
 A required act for there to be a violation of
Section 2 of the Sherman Act

i.e., predatory pricing
 Possession of monopoly power without
such an act does not violate Section 2 of
the Sherman Act.
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Defenses to Monopolization
 Innocent Acquisition
 Superior business acumen
 Monopoly that is acquired by superior skill,
foresight, or industry
 Natural Monopoly
 Monopoly that is thrust upon the defendant
 Small market that can support only one
competitor
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Section 7 of the Clayton Act: Mergers
 Section 7 of the Clayton Act provides that
it is unlawful for a person or business to
acquire the stock or assets of another
“where in any line of commerce or in any
activity affecting commerce in any section
of the country, the effect of such
acquisition may be substantially to lessen
competition, or to tend to create a
monopoly.”
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Mergers (continued)
 The following elements are necessary to
prove a violation of Section 7 of the
Clayton Act:
Line of commerce – the market that will be
affected by the merger.
 Section of the country – geographical market
that will be affected by the merger.
 Probability of a substantial lessening of
competition

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Types of Mergers (1 of 2)
Horizontal Mergers
 A merger between two or
more companies that
compete in the same
business and geographic
market
 United States v.
Philadelphia National
Bank established the
presumptive illegality test
Vertical Mergers
 A merger that integrates
the operations of a
supplier and a customer
 Backward vertical merger

The customer acquires
the supplier
 Forward vertical merger
 The supplier acquires the
customer
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Types of Mergers (2 of 2)
Market Extension Mergers
 A merger between two
companies in similar fields
whose sales do not
overlap
 Geographical market
extension merger
 Product market extension
merger
Conglomerate Mergers
 A merger that does not fit
into any other category
 A merger between firms in
totally unrelated
businesses
 Unfair advantage theory
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Defenses to Section 7 Actions
The Failing
Company
Doctrine
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The Small
Company
Doctrine
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Premerger Notification
 Hart-Scott-Rodino Antitrust
Improvement Act of 1976
An act that requires certain firms to notify the FTC and
the Department of Justice in advance of a proposed
merger
 Unless the government challenges the proposed
merger within 30 days, the merger may proceed

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Section 3 of the Clayton Act:
Tying Arrangements
 A tying arrangement is a restraint of trade
where a seller refuses to sell one product
to a customer unless the customer agrees
to purchase a second product from the
seller.
 Section 3 of the Clayton Act prohibits tying
arrangements involving sales and leases
of goods.

i.e., tangible personal property
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Tying Arrangements (continued)
 Section 1 of the Sherman Act prohibits
tying arrangements involving goods,
services, intangible property, and real
property.
 A tying arrangement is lawful if there is
some justifiable reason for it.
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Section 2 of the Clayton Act:
Price Discrimination
 Commonly referred to as the Robinson-
Patman Act
 Sellers often offer favorable terms to their
preferred customers
 Price discrimination occurs if the seller
does this without just cause
 Illegal if it results in substantially lessening
competition or creating a monopoly in any
line of commerce
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Direct Price Discrimination
To prove a violation of Section 2(a), the
following elements must be shown:
1. The defendant sold commodities of like grade
and quality;
2. to two or more purchasers at different prices at
approximately the same time; and
3. the plaintiff suffered injury because of the price
discrimination.
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Indirect Price Discrimination
 A form of price discrimination that is less
readily apparent than direct forms of price
discrimination
 i.e., favorable credit terms, freight
charges, and such to favored customers
 These are violations of the Robinson-
Patman Act
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Defenses to Section 2(a) Actions
 The Robinson-Patman Act establishes
three statutory defenses to Section 2(a)
liability:
1. Cost justification defense
2. Changing conditions defense
3. Meeting the competition defense
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Section 5 of the Federal Trade Commission
Act: Unfair Methods of Competition
 Section 5 of the FTC Act – prohibits
unfair methods of competition and unfair
or deceptive acts or practices in or
affecting commerce.
 Section 5 is broader than the other
antitrust laws.
 The FTC is exclusively empowered to
enforce the FTC Act.
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Exemptions From Antitrust Laws
 Statutory Exemptions – exemptions from
antitrust laws that are expressly provided
in statutes enacted by Congress.
 Implied Exemptions – exemptions from
anti-trust laws that are implied by the
federal courts.
 State Action Exemptions – business
activities that are mandated by state law
are exempt from federal antitrust laws.
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State Antitrust Laws
 Most states have enacted antitrust
statutes.
 State statutes are usually patterned after
the federal antitrust statutes.
 State antitrust laws are used to attack
anti-competitive activity that occurs in
intrastate commerce.
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