Antitrust Law

Why Should You Be Concerned with Antitrust Law?

Businesses seek growth, more market shares and profit. To these ends, many strategies and conducts are geared toward increase efficiency and reduce cost. For example there are a lot to gain from sharing industry knowledge, cooperating with competitors to tackle common challenges, knowing competitor’s strategies and pricing practice, discovering the credit of a customer, joining with other players to buy raw material, conduct research, or produce a products, and etc. But notwithstanding valid justifications for greater cooperation, companies might violate Antitrust Law.

Antitrust law has serious consequence for businesses, even small businesses, because of its penalty of violation. It affects many business decisions, from small (buying decision) to big (merger). Likewise, antitrust law has great impact on ordinary consumers, even most of them have never heard of it, because the law can save consumers million or even billions of dollars a year in illegal overcharges. Therefore, we, Lei Jiang LLC, think it is the best to know the basic principle of the antitrust law, especial for business.

What is Antitrust Law?

Antitrust laws are state and federal laws created to promote fair competition and prevent monopolies. It applies to both businesses and individuals. Specifically, it prevents unlawful restraints, price-fixing, and monopolies. The center piece of American Antitrust Laws is the Sherman Act. Section 1 of the Sherman Act states,

“every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce… is hereby declared to be illegal.”

The language seems to be swiping, but the Supreme Court narrowed it to mean that only agreements that “unreasonably” restrain trade are prohibited by §1. Standard Oil Co. v. United States, 246 U.S. 231 (1918).

The basic elements of violations are:

• Concerted activity by two or more actors (e.g., an agreement)
• An unreasonable restraint of trade, and
• An effect on interstate commerce.

Agreement by Two or More

The essence of violation of §1 is an agreement between two or more parties. Unilateral conduct is not actionable under the Sherman Act. To establish an agreement, the following principles should bear in mind.

1. An illegal agreement need not be in writing or even “express,” but can be implied from conduct.
2. Agreements can be proved through circumstantial evidence, and
3. Agreements can be pieced together from multiple examples of conduct that is seemingly innocent.

Unreasonable Restraint of Trade

First, courts have recognized that some business conducts are per se illegal, meaning plainly wrong. If such conduct is involved, plaintiff needs only to prove such agreement exists, and needs not to prove any negative effect on competition. These conducts include price-fixing, bid-rigging, market or customer allocation, and group boycotts. Price fixing includes any agreement among competitors about the price, agreeing to raise or lower price, eliminating discounts, fixing credit terms offered to customers, etc.

Any concerted action that is not under per se group is judged by “Rule of Reason,” meaning that courts will weighs the harm caused by the restraint on competition against the business justifications. But sometimes the line between per se violations and non per se violations is hard to draw. Legal consultation is paramount to make sure that a business conduct is lawful.

Examples

Now let’s look at some specific conducts that might be considered by small businesses and their Antitrust Law implication.

Exchange of credit experiences and credit terms with competitors

It is always beneficial to a business to know the creditworthiness of a new customer. Such knowledge could have a significant impact on a firm’s bottom line. Likewise, knowledge of what terms have been offered by competitors would allow a firm to provide more favorable terms without losing the customers. Because of these incentives, some industries have set up formal or informal groups meeting and exchange certain information about their credit experiences and the terms they are currently offering. Are these good business practices?

The U.S. Supreme Court has made clear that agreements among horizontal competitors to fix credit terms are price fixing and are per se illegal. On the other hand, courts have found mere exchange of information regarding the credit-worthiness of customers does not violate the Sherman Act if there is no agreement and any decision made by a company is based on each company’s independent judgment. But an Agreement can be proved through circumstantial evidence (meaning from inference), thus these practices remain risky.

Ultimately, each company must assess for itself whether it is comfortable bearing the risk of such conduct where potential liability is not clear. There are many ways to minimize antitrust risks. You should consult an antitrust lawyer to minimize the risk of questionable conducts.

Participating in joint buying groups

It is more efficient and cost effective for companies banding together to purchase raw material, products and service in today’s economy. Such arrangements are not prohibited by the antitrust laws, but they are not without risk if participating companies are not careful.

If joint buying groups involve the concerted activity of competitors, then they may generate anti-competitive effects. Indeed, joint buying groups have been challenged by excluded competitors, disgruntled suppliers and the antitrust enforcement agencies. They typically challenged under §1 of the Sherman Act. Some courts even apply the per se rule in determining whether the challenged conducts unreasonably restrain the trade.

The legitimacy of joint buying groups depends on the nature of the arrangement and the market at issue. You should seek guidance from an antitrust lawyer on implementing safeguards and reducing risks.

Trade associations as a source of information sharing

Trade associations serve many legitimate business purposes and provide their members with valuable benefits. Here we focus on the information sharing aspect of trade associations and consider potential antitrust violation of such trade association.

Exchanging price information within such group may not subject the members to antitrust suit. But there are numerous instances in which participants may move beyond the mere information sharing and into more risky conduct. For example, members engage in discussions about whether to conduct business with certain suppliers, manufacturers, distributors or any other categories of persons that participate in the distribution chain. Therefore, safeguards must be implemented to protect members from antitrust challenges. An antitrust lawyer can help you reach the benefits of trade association without exposing to the danger of antitrust violations.

Enforcement of Antitrust Laws

Antitrust laws are enforced largely by two agencies, the Federal Trade Commission (FTC) and the U.S. Department of Justice’s Antitrust Division. Private parties may also bring civil suits. Violations are felonies and carry fines up to $10 million for corporations, and fines up to $350,000 and prison sentences of up to three years for persons. Moreover, governments and individuals can collect triple damages they have suffered as a result of such conduct.

As you can see, antitrust laws have a serious effect on business practices and the organization of U.S. industry. Please think carefully about your next business move and consult with an antitrust attorney if necessary.

Lei Jiang Law Firm provides consulting service, advisory opinion, and litigation practice of Antitrust Laws. We can provide you guidance, help you to implement safeguards and reduce the risk. Please contact us if you have any question on antitrust law.