Chapter 19 forms of business organisations 19-2 sole proprietorship Sole-proprietorship: a business that does not have a status of a separate legal entity. Hence, the debts and liabilities of the sole proprietorship can be repaid using the capital of its owner - No formal requirements to forming Fictitious business name: the name of a business that is different from the name of its owner - The name must be registered with the state A sole proprietorship terminates on the discontinuation of the business or the death of the proprietor 19-3 general partnerships General partnership: a partnership in which the partners share both profits and losses of the partnership - Separate entity from its owner, can acquire its own name 19-3a flexibility - Pass-through entity: an entity that does not pay tax as a separate taxpayer 19-4 joint ventures Joint venture: an agreement between two or more partners for a certain purpose, E.g., enterprise or transaction 19-5 limited liability partnerships Limited liability partnerships (LLP): a form of a limited partnership in which the liability of all of the partners is limited to the capital they have invested 19-6 limited partnerships Limited partnership: a partnership consisting of partners with limited liability (limited partners) and partners who are jointly and severally liable (general partners) - Limited partner: a partner in a limited partnership whose liability for that partnership is limited to the capital that they contribute to it (often used to raise capital) - General partner: a partner in a limited partnership whose liability remain jointly for partnership obligations 19-7 master limited partnerships Master limited partnership (MLP): business structure where the corporation is able to raise money on public exchange s and doesn’t pay income tax at the corporate level - Distorporations 19-8 corporations Corporations: an organisation - Corporate charter/ articles of incorporation: a document filed upon the incorporation of the business. (Includes the name, purpose, agent, authorized number of shares, and classes of stock of the corporation) - Shareholders/stockholders: individuals who purchased an ownership stake in the company - Board of directors: a body of a corporation responsible for the overall management of the corporation (elected by shareholders) - Liability of shareholders is limited to their investments 19-8a C corporations C corporation: a corporation which is taxed according to the rules of the internal revenue code subchapter C; corporation pays income tax on revenue, and shareholders pay income tax on received dividends 19-8b S corporations S corporations: a corporation which is taxed according to the rules of the internal revenue code subchapter S; shareholders pay their share of tax on the corporation’s income according to the amount of shares owned 19-8c Close corporations Close corporation: a corporation whose shareholders agree to simplify the traditional formalities regarding the top government procedures of stakeholders and the board of directors 19-8d closely held corporations Closely held corporation: only exists in common law: a small corporation with little to nor market for its stocks Benefit corporation: a for-profit corporation that also has a goal to create tangible societal or environmental value. Formalizing this status allows the board of directors to make decisions that are not necessarily profit-maximising 19-9 limited liability companies Limited liability company (LLC): a form of a limited partnership in which the liability of all of the partners is limited to the capital they have invested - Must file a certificate of formation: see articles of organisation - Members: the owners of an LLC - Operating agreement: the rights, obligations, and powers of the managers are set forth in it - Managers: responsible for managing the busines, elected by the members 19-10 low profit limited liability companies Low profit limited liability company (L3C): both business and charitable or educational purposes, but it is a pass-through entity for tax purposes 19-11 income tax considerations 19-11a comparing taxable entities with pass-through entities - Property transfers - Cash distributions - Operating losses - Capitalization - Allocation of losses - Ability to raise venture capital 19-12 effect of agency law on limited liability for managers 19-13 partnership mechanics 19-13a formation of a general partnership - Without a written agreement - With a written agreement 19-13b operation of a general partnership 19-13c fiduciary duty 19-13d dissociation, dissolution, winding up, and termination of a general partnership - Dissociation: the change in the relationship among the general partners that results when a partner ceases to be associated with the general partner-ship’s business - Dissolution: a termination. In case of a dissolution of a partnership or a company, it signifies the beginning of the process of winding up the business o Term partnership: a partnership with a pre-defined deadline or limited to a certain definite goal o At-will partnership: a partnership that does not involve a fixed term or the completion of a specified undertaking - Winding up: the process of bringing a company to an end (liquidating its assets, paying off creditors, ceasing operations) after it has been dissolved - Termination: a point after the dissolution of a partnership when the partnership is completely extinguished, and all legal matters are wound up 19-14 limited partnership requirements 19-14a formal requirements 19-14b limited participation 19-14c fiduciary duties 19-15 incorporation Incorporation: a process by which a corporation is formed - Corporate domicile: a country or an US state under whose laws a corporation is formed - Foreign corporation 19-15a where to incorporate Staggered board/ classified board: a board for which directors are divided into classes each serving a specified term, usually lasting three years. This way, every year, one third of the directors gets re-elected 19-15b how to incorporate Bylaws: the rules governing the corporation (including the number of authorized directors) 19-15c Bylaws 19-15d defective incorporation De jure corporation: a corporation by law (a real corporation), as contrasted with de facto corporation De facto corporation: an enterprise that does not fulfil all the requirements of a corporation but is treated as such in court Corporation by Estoppel: if a third party is performing transactions with an enterprise as if it were corporation, then the third party must treat it as a corporation in all legal matters 19-16 piercing the veil of a corporation or limited liability company Pierce the corporate veil: a disregard of the corporation as a separate entity, allowing to find the directors of the board liable in court 19-16a alter ego theory Alter ego theory: when the owners of a corporation have mingled their affairs to the point that the corporation does not exist as a distinct entity – it is an alter ego of its owners - Dominating by controlling shareholders - Bypassing of formalities 19-16b undercapitalization theory Undercapitalisation theory: when the corporation is a separate entity but its deliberate lack of adequate capital allows it to skirt potent liabilities - Tort versus contract 19-16c reverse piercing Outsider reverse piercing: when a third party, such as a creditor of a shareholder, is able to reach the assets of the corporation to obtain payment of the shareholder’s debt 19-16d application to limited liability companies 19-17 management of the corporation 19-17a directors Inside directors: a member of the board who is also an officer Outside director/ independent director: a director who is not also an officer 19-17b officers Officer: agents of the corporation who have the power to act on its behalf 19-17c shareholders - Voting rights o Proxy: a written document authorizing another person to vote on a shareholder’s behalf o Shareholders of record: peron whose names appear on the corporation’s shareholder list on a specified date o Quorum stops shareholders’ meeting - Plurality and majority voting o Plurality standard: chosen if received a plurality of votes cast for any nominee, without regard for the votes withheld o Majority voting: must receive majority of the votes o Plurality plus voting - Cumulative voting versus straight voting o Cumulative voting o Straight voting - Class voting - Nominations of directors - Including shareholders proposal in managements proxy statement o Proxy access - Shareholder inspection rights and access to the shareholder list o Proxy contests - Direct and derivative shareholder suits o Shareholder derivative action: a lawsuit that shareholder has brought against the corporate directors on behalf of the corporation - Impact of the shareholders religious beliefs on the obligations of a corporation 19-18 structural corporate changes 19-18a merger Merger: joining of two or more corporations; after the merger, a disappearing corporation loses its status and becomes a part of the surviving corporation - Surviving corporation: a corporation that keeps its status after a merger - Freeze-out merger: a merger in which the minority shareholders are required to surrender the shares of the disappearing corporation for cash 19-18b sale of assets 19-18c purchase of stock and tender offers - Target corporation - Tender offer: a public offer to all the shareholders of the target corporation to buy some or all of their shares at a stated price - Bidder (raider): the party making the offer - Takeover 19-18d second-step back-end mergers Second-step back-end merger 19-18e self-tender offers and going-private transactions Going private: buying back the shares so that there are 300 or less shareholders of record (official shareholders) 19-18f leveraged buyouts Leveraged buyout (LBO): a purchase financed by debt 19-18g appraisal (dissenters’) rights - Dissenting shareholders: shareholder who voted against the transactions - Appraisal rights / dissenter’s rights: rights of the shareholders who voted against a merger to receive in cash the fair value of the shares they were forced to give up as a result of the transaction Chapter 24 international law and transactions 24-1 types of legal systems 24-1a common law Common law system: examines past judicial decisions to form general rules (called “precedents”) - State decisis limits a judge’s power to deviate form precedents - Codification: the process by which existing common law principles are restated and laid down in a statute 24-1b civil law Civil law legal system: relies on statutes that are embodied in a unified code - Private law: the area of the law concerned with recognition and enforcement of private rights - Public law: concerned with interest of the state action 24-1c other families of law - Islamic law - Hindu law - Socialist law 24-2 sources of international law - Public international law: governs the relationship among nation-states - Private international law: governs the relationships between private parties across borders - Supranational law: a form of international law under which nations submit their decision-making authority to a common organisation or institution such as the WTO or the United Nations Security Council 24-2a treaties Treaties: written agreements between two or more countries (conventions, pacts, protocols or accords) - Ratification: the action of signing or giving formal consent to a treaty, contract, or agreement, making it officially valid - Accession: a process whereby a nation that was not an original party to a treaty can elect to participate in the treaty at a later time 24-2b customary international law Customary international law: continuous customary practice 24-2c decision of international, national, and regional courts 24-3 national laws, affecting international business and governmental affairs 24-3a constraints on foreign ownership Repatriate: to return profits earned in a host country to the firm’s home country (in the context of business) 24-3b nationalization, expropriation, confiscation, and privatization - Nationalisation: host country decides to assert ownership on all assets - Expropriation: if the host country compensates the company for its lost assets - Confiscation: no compensation provided - Privatisation: property ownership is transferred from a nation to a private entity 24-3c export laws 24-3d sanctions Economic sanction - Embargoes: a sanction against some or all commerce with one country that is declared by another country 24-4 extraterritorial application of national laws Extraterritoriality: a practice whereby countries assert the right to regulate activities that occur beyond their borders 24-4a US alien tort statute 24-5 foreign corrupt practices act and other bribery plans 24-5a us foreign corrupt practices act - FCPA anti-bribery provision o Facilitating payments: payments to low-ranking officials who merely expedite the nondiscretionary granting of a permit or license - FCPA record-keeping requirements - FCPA fines and penalties 24-5b other national bans on bribery - Brazil - China - UK 24-6 international banking regime 24-7 US trade regime - Tariffs: government fees and importer must pay when importing merchandise from another country - Quotas: quantitative limitations - Export licenses 24-7a role of congress 24-7b role of the president …. Generalized system of preferences (GSP): a tariff program that exempts countries from certain WTO restrictions, allowing lowering of tariffs to benefit developing countries, while not lowering tariffs for developed countries Ad valorem tariff: the tariff paid by the importer is calculated as a percentage of the value of the imported merchandise Countervailing duty: a duty levied on an imported good to offset subsidies to producers or exporters of that good in the exporting country 24-8 regional international trade regimes 24-8a north American free trade agreement … 24-9 the world trade organisation 24-9a principles of the WTO - Most favoured nation (MFN) treatment: a principle that each member country of the world trade organisation must provide to all other WTO members tariff treatment no less favourable than it provides to any other country - Bound tariffs: a WTO principle stating that once a tariff is reduced, it may not be raised again - National treatment: a WTO principle that member must not discriminate against imported products in favour of domestically produced products - Fair competition 24-9b addressing nontariff barriers 24-10 regional economic integration 24-11 the European union 24-11a principal EU institutions - European commission, executive - Council of the European union, legislative o Regulations o Directive o Decision - European parliament, policymakers - Court of justice - European court of auditors - European council - European central bank 24-11b emissions trading scheme 24-11c challenges - Immigration - Disenfranchisement - Non-uniform areas of law 24-12 structuring international operations 24-13 investing and doing business abroad 24-13a investment goals and competitive position - Local market penetration - Regional base - Cheaper production costs - Technology transfer and licensing 24-13b host country conditions - Political and legal conditions - Labour conditions - Language and customs - Macroeconomic conditions - Geographic considerations and infrastructure 24-13c financial issues - - currency consideration o countertrade: a practice whereby a foreign investor uses its local currency profit to purchase local products for sale abroad project capitalisation taxation o gross-up clause: a clause in foreign investment contracts by which the local partner is obligated to pay all taxes other than those specifically allocated to the foreign partner 24-14 contracting across national borders 24-14a payment - letters of credit o beneficiary: recipient - guaranties 24-14b choice of law and choice of forum 24-14c translations 24-15 Dispute resolution in international transactions 24-15a dispute resolution mechanisms - negotiation - good offices - inquiry - conciliation: settlement out of court, usually with the assistance of a neutral third party - arbitration o ad hoc arbitration: in international dispute resolution, arbitration in which internationally accepted rules may be used in conjunction with the parties’ own methods - litigation forum non conveniens: a doctrine whereby a suit is dismissed and transferred to a more convenient court, likely due to location of the witnesses and plaintiff/ defendant 24-15b choosing between arbitration and litigation 24-15c litigation outside the US - discovery - recovery attorney fees 24-15d enforcement of arbitration awards 24-15e enforcement of court judgements - comity: a principle whereby a court will enforce another country’s judgements under certain conditions 24-16 disputes with foreign governments 24-16a sovereign immunity Sovereign immunity: a doctrine that prevents the courts of one country from hearing a suit against the government of another country 24-16b act-of-state doctrine Act-of-state doctrine: the doctrine that states that the courts of one country will not sit in judgement on the acts of the government of another done within it’s the territory of the other government Chapter 11: intellectual property Intellectual property: any product or result of a mental process that is given legal protection against unauthorised use. - Patents, copyright, trademarks, and trade secrets 11-1 patents Patent: a government-granted right to exclude others from making, using, selling or importing an invention - utility, design and plant patents 11-1a utility patents Utility patent: - the most frequent issued patent - Novel: if it was not anticipated - not previously known or used by others o will be refused a patent protection if the novelty merely represents an obvious development over existing technology, also referred to as prior art o Prior art: existing technology o Statutory bar: the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filling date of the claimed invention - nonobvious - useful - patentable subject matter 11-1b design patents Design patent: protects any novel, original, and ornamental design for an article of manufacture - protect against copying the appearance or shape of an article - A design dictated by function rather than design cannot be protected by a design patent (may with a utility patent) 11-1c plant patents Plant patent: protect any distinct and new variety of plant that is asexually reproduced, does not exist naturally. 11-2 obtaining patent protection 11-2a provisional patent applications 11-2b nonprovisional patent application - Specifications: descriptions of the invention as defined by the claims o clear, concise and exact o The manner and process of making and using the invention in such a way that an individual skilled in the relevant field could make and use it o Best mode: the best way the inventor knows to make the invention at the time of - filing the (patent) application Claims: the numbered paragraphs at the end of the patent, describe the elements of the innovation that the patent will protect. Drawing and declaration by the inventor Review by patent examiner and patent issuance Post-grant review 11-3 patent infringement and litigation 11-3a types of infringement - Direct patent infringement: the making, use, or sale of any patented invention within the US during the term of the US patent Contributory patent infringement: when one party knowingly sells an item with one specific use that will result in the infringement of another’s patent Indirect patent infringement/ Inducement to infringe: a party’s active inducement of another party to infringe a patent o requires only “actively induced infringement”; intent to bring about the desired result - the infringement 11-3b defences to patent infringement - invalidity - - - Non infringement: a defence that asserts that the allegedly infringing matter does not fall within the claims of the issued patent o compare the specific language of the patent claims with the allegedly infringing matter o A matter of law for the court, not the jury o Prosecution history estoppel (file-wrapper estoppel): doctrine that prevents a patent owner from asserting claim interpretation at odds with the application one file with the PTO Patent misuse: improperly expanding the temporal or physical scope of a patent o also, seeking to enforce a patent obtained through inequitable conduct o A patent holder is barred from recovering for any infringement of its patent during the period of misuse innocent infringement First sale doctrine (patent exhaustion doctrine): an authorised sale of a patented article exhausts the patent holder’s exclusive rights as to that article, to the extent that the article embodies the invention. o the holder is precluded from obtaining any further royalties or imposing any further restrictions on the article or its subsequent sale or transfer 11-3c extraterritorial application of US patents 11-3d remedies for patent infringement - injunctive relief and the perils of patent trolls o Patent assertion entity (PAE)/ patent trolls: people who acquire patents and use them not as a basis of producing and selling goods, but instead primarily to obtain licensing fees. - Damages 11-4copyrights Copyright: a legal right to prevent others from copying an original expression embodied in any original work of authorship fixed in a tangible medium. - protect the expression, not the underlying ideas, in the work - Exclusive right to reproduce, distribute, display and publicly perform the work and make derivative work - To be copyrightable, the works must be fixed in a tangible medium from which they can be perceived, reproduced or communicated - Does not extend to names, familiar phrases, government publications, standardised information or facts - If an author can establish the fixity and originality of a work, copyright protection is automatic and entitles the author Derivative work: works based on the copyrighted work 11-4a ownership and scope of copyright protection Work made for hire: when either an employee created the work within the scope of employment or the work is within one of nine listed categories and is specially commissioned through a signed writing stating that the work is made for hire 11-4b expression versus idea Merger doctrine: when an expression and idea are inseparable, the expression is not copyrightable 11-4c useful article doctrine Useful article doctrine: precludes copyright protection for the useful application of an idea 11-4d term of copyright protection 11-4e copyright formalities: registration and notice - Copyright registration - Copyright notice 11-4f types of copyright infringement - - Direct copyright infringement: when a person violates any of the five exclusive rights of the copyright holder Contributory copyright infringement: inducing, causing, or materially contributing to the infringing conduct of another with knowledge of the infringing activity Vicarious copyright liability: if the defendant has the right and ability to control the infringer’s act and receives a direct financial benefit from the infringement Active inducement to infringe 11-4g defences to copyright infringement - - - Fair use doctrine: provides that a person may infringe the copyright owner’s exclusive rights without liability if the person uses the copyrighted material while engaging in such activities as literary criticism, social comment, news reporting, education, scholarship, or research. o they consider 1 the purpose and character of the use, 2 the economic effect of the use on the copyright owner, 3 the nature of the copyrighted work, and 4 the amount of substantiality of the work used First sale doctrine (copyrights): a copyright owner has exhausted its statutory right to control distribution of a copyrighted item once the owner sells the item and thereby put it in the stream of commerce o the owner cannot thereafter prevent its resale or transfer to others even when the product is produced or sold outside the US o Makes it difficult to combat the grey market Copyright misuse: exists when a copyright owner leverages his or her statutory copyright to gain control over areas outside the copyright’s intended scope 11-4h remedies for copyright infringement - Criminal liability 11-4i ongoing reviews of copyright law 11-5 registered mask works - Registered mask work: highly specialised form of intellectual property o created by the semiconductor chip protection act: gives the owner copyright-like exclusive rights in the registered mask work for a period of 10 years and prohibits its copying or use by others o Include injunctive relief, damages, and impoundment of the infringing mask and chips 11-6 trademarks Trademark: words or symbols that identify the source of goods or services • tells where a product comes from and who is responsible for its creation • Implies that all goods under the mark are consistent 11-6a types of trademarks and scope of trademark protection 11-6b service and other types of marks - - Service mark: a trademark is used in connection with a tangible product Trade name: identifies a company, partnership, or business Certification mark: indicates that the product has met the certifier’s standards of safety or quality 11-6c the varying distinctiveness of trademarks - - - - Arbitrary mark/ Fanciful mark: o strong marks, because they are immediately protectable o Fanciful mark: a coined term that had no prior meaning until used as a trademark in connection with a particular product (made-up words) o Arbitrary mark: real words whose ordinary meaning has nothing to do with the trademarked products (Camel for cigarettes or Shell for gasoline) Suggestive mark: suggest something about the product without directly describing it o after seeing the mark, a consumer must use his or her imagination to determine the nature of the goods Descriptive mark: specify certain characteristics of the goods (size or colour, proposed uses, the intended consumers) o initially unprotect able, but can be if they acquire secondary meaning (obtain distinctiveness) o Secondary meaning: a mental association by the buyer that links the mark with a single source of the product geographic terms personal names generic terms o Genericity: the use of the product name as a generic name (Kleenex) for terms that describe product made by only one company 11-6d creating rights in a trademark - trademark searches - common law rights in a trademark - federal registration - state registration 11-6e loss of trademark rights Abandonment: failure to use or police the use of one’s mark - may result in the loss of rights - Actual abandonment: when an owner discontinues use of the mark with the intent not to resume use - Constructive abandonment: when the owner does something, or fails to do something, that causes the mark to lose its distinctiveness 11-6f trademark infringement - Blurring: when the non-famous mark reduces the strong association between the oner of the famous mark and its products. - Tarnishment: when the famous mark is used in connection with a particular category of goods or goods of inferior quality, resulting in damage to the positive image associated with the products bearing the famous mark. 11-6g defences to trademark infringement - First sale doctrine (trademarks): a trademark owner may not act against resellers of products after the first sale of the product o attempts to strike a balance among 1 trademark law’s goal of allowing producers to reap the benefits of their reputation, 2 consumer’s desire to receive what they bargain for, and 3 the public interest in painting competitive markets by limiting a producer’s control of resale o Only applies when the seller is legally selling genuine trademarked goods - Fair use - Nominative use - Genericity - First amendment 11-6h remedies for trademark infringement - Counterfeit mark 11-7 domain names and cybersquatting - Domain name: internet addresses - Cybersquatting: when an individual would register famous trademarks as domain names and then offer to sell them to the trademark owners for “ransom”. o to prove, the complainant must prove that 1 the disputed domain name is identical or misleadingly similar to a trademark to which the complainant has rights, 2 the respondent has no legitimate rights in the domain name, and 3 the domain name is being held and used in bad faith 11-8 trade dress - Trade dress: the packaging or dressing of products 11-9 trade secrets - Trade secret: confidential information that gives businesses an advantage over competitors that do not know the information 11-9a definition of trade secret - Common law - The uniform trade secrets act o Know-how o Show-how: non-secret information used to teach someone how to make or do something; it is generally not protectable The defend trade secrets act 11-9b creating rights in a trade secret 11-9c protecting a trade secret - Notification - Identification - Security - Exit interviews 11-9d criminal liability 11-9e civil liability - Inevitable disclosure doctrine: recognises that former employees who go to work for a competitor in a similar capacity will inevitably rely on and dispose the trade secrets gained in their former employment 11-9f civil remedies for trade secret misappropriation - Injunctions - Damages - Unitary patent (in EU): applicants will be able to obtain uniform patent protection in all member states without meeting the existing complex validation requirements for European patents. Chapter 16 antitrust Antitrust laws: the economy functions best when firms are free to compete vigorously with one another, more competition - antitrust statutes contain very general prohibitions on business conduct. The courts and agencies that enforce the antitrust laws must distinguish between the pernicious and the benign 16-1 jurisdictional reach of the Sherman act 16-2 section 1 of the Sherman act: agreements in restraints of trade 16-2a what constitutes a contract, combination, or conspiracy Horizontal agreement: those between firms that compete directly with each other at the same level of production or distribution - Interbrand competition: competition between companies producing the same type of product or service Vertical agreement: those between firms at different levels of production or distribution - Intraband competition: competition among firms producing or distributing the same brand Proving a horizontal conspiracy - Conscious parallelism: independent firms consistently set prices at the same levels and change prices at the same time - Plus factors: additional facts Proving a vertical conspiracy 16-2b what constitutes an unreasonable restraint of trade - Per se violations o Per se analysis: condemns practices that are considered completely void of redeeming competitive rationales o Illegal per se: practices that restrict competition and decrease output o Horizontal price-fixing: agreements between retailers to set a common price for a product or service - The rule of reason o Rule of reason: to determine whether, on balance, the activity promotes or restraints - Interrelationship between patent and antitrust - Quick-look analysis: used when only rudimentary understanding of economics is required o the burden shifts to the defendant to provide evidence of the procompetitive effects if his conducts competition (helps or harms to consumers) 16-2c types of horizontal restraints - Horizontal price-fixing - Horizontal market division: A violation of antitrust law, involving firms at the same production/distribution level agreeing on dividing markets by consumer class or by geographic area - Group boycott: an agreement among competitors to refuse to deal with another competitor 16-2d types of vertical restraints Vertical restraint: restraints between firms at different levels in the chain of distribution (price-fixing, market division, tying arrangements, certain franchise agreements) - Vertical price-fixing o Resale price maintenance (RPM): maximum and minimum vertical price-fixing - Vertical market division: A violation of antitrust law, involving firms at different production/distribution levels agreeing on dividing markets by consumer class or by geographic area - Exclusive distributorship: a manufacturer may limit itself to a single distributor in a given territory or line of business, refusing t sell to other potential distributors in that territory or line of business - Territorial restriction Customer restrictions - Dual distributor: a manufacturer that still sells its goods through both wholesale and retail channels 16-3 product bundling and other tying arrangements - Tying arrangement: a way of forcing a buyer to purchase a product or service it would not buy on the products or service’s own merits 16-3a separate products 16-3b conditions of sale 16-3c market power 16-3d effect on commerce 16-3 business justification 16-4 application of the antitrust laws to franchise agreements - Franchise: a business relationship in which one party grants to another party the right to use the franchisor’s products from a specified local 16-5 section 2 od the Sherman act: monopolies and attempts to monopolise 16-5a market power Market power/ monopoly power: the power to control prices or exclude competition in a relevant market - market by supra competitive prices (higher prices than in a competitive market) - defining the relevant market - Multiple-brand product market: made up of product or service offerings by different manufactures or sellers that are economically interchangeable ad may therefore be said to compete - Single-brand product market - Geographic market - Determining market share\ - Barriers to entry 16-5b monopolistic intent - Predatory pricing: the attempt to eliminate rivals by undercutting their prices to the point where they lose money and go out of business, leaving the monopolist unrestrained by competition and thus able to raise its prices - Refusal to deal and the essential facilities doctrine o Essential facility: resources necessary to someone’s survival that they cannot feasibly duplicate o Rule of impossibility: the rule under which a court rejects claims of predation because the market in question cannot be successfully monopolised - Other anticompetitive acts Allocative efficiency: an equilibrium in which scarce societal resources are allocated to the production of various goods and services up to the point where the cost of the resources equals the benefit society reaps from their use Productive efficiency: an equilibrium in which only the lowest-cost producers of goods and services survive 16-5c derivative markets and monopoly leveraging 16-6 mergers: section 7 of the clayton act 16-6a Hart-Scott Rodino antitrust improvement act: premerger notifications - Jurisdictional thresholds o Size-of-the-person test: Measures the sales and assets of the buying firm, the target firm, as well as the controlling companies/individuals involved in an acquisition o Size-of-transaction tests: Measures the total value of the transaction in a merger or acquisition - Filing and waiting period - Exclusive pharmaceutical and other licensing arrangements 16-6b merger guidelines Herfindahl-Hirschman Index (HHI): The sum of squares of the individual market shares in an industry. It is used to determine the anticompetitive effect of a potential merger 16-6c litigation under section 7 - Horizontal merger: a combination of two or more competing companies at the same level in the chain of production and distribution - Vertical merger: the acquisition by one company of another company at a higher or lower level in the chain of production and distribution - Conglomerate merger: mergers that are neither horizontal nor vertical in the traditional sense, not direct competitors 16-7 price discrimination: the robinson-patman pact Price discrimination: selling the same tangible product to different purchasers at the same level of distribution at different prices 16-7a elements of a robinson-patman case - Primary line violation: A violation when a manufacturer/distributor uses price discrimination and causes injury to its competitors serving the same market - Secondary line violation: When favored customers of a supplier are given a price advantage over competing customers, causing injury at the buyer level 16-7b defenses - Not actual competitors for same customer - Not taking advantage of available discounts - Meeting the competition - Cost justification - Changing conditions 16-8 unfair methods of competition: section 5 of the federal trade commission act 16-9 state-action exemption 16-10 antitrust enforcement 16-10a criminal violations of the Sherman act - Leniency o Cartel: groups of competitors that agree to set prices 16-10b civil suits by federal or state governments Parens patriae action: civil actions for injuries sustained by residents in their respective states 16-10c injunctive relief and damages for violations of section 7 of the clayton act and the hart-scottrodino antitrust improvements act 16-10d private suits - Antitrust injury: a loss due to a competition-reducing aspect or effect of the defendant’s violation of the antitrust laws - Standing: the plaintiff must have suffered an injury from the defendant’s violation of the antitrust law 16-11 the extraterritorial reach of us antitrust laws 16-11a international comity 16-11b sovereign immunity Sovereign immunity: to avoid disputes with foreign governments - if a foreign firm’s anticompetitive activity was directed by the government, then US antitrust will not be enforced 16-11c conduct affecting us imports 16-11d conduct affecting us exports 16-11e foreign enforcement of us damage awards 16-11f us control over offshore mergers and other jurisdiction No poaching agreement
