Antitrust law is a complex area of federal and state statutory law, the primary purpose of which is to prevent businesses from creating unjust monopolies or competing unfairly in the marketplace. Antitrust law seeks to maximize market efficiency and to protect consumers. Many specific actions are covered by these laws, including pricing policy, terms of trade, customer and territory selection, bundling of services, advertising and sales technology, and mergers and acquisitions. An experienced antitrust attorney who stays abreast of current developments in this area should be able to advise businesses on how to avoid antitrust problems.
Businesses are prohibited by antitrust laws from forming or trying to form a monopoly. The law also restricts the way businesses interact with their competitors and customers.
A business has a monopoly in the market if it has such an advantage over all other businesses in that field that it is said to have economic control. The company with the monopoly may be the only manufacturer of a particular commodity, or it may provide a service in the community to virtually all consumers desiring the service. A natural monopoly is one over which the business has no control--it forms in the natural course of a growing economy. The market may be so specialized, for example, that no other businesses have found it feasible to establish themselves in that area. Power companies often have natural monopolies. Natural monopolies are not illegal. It is illegal, though, for a business to conspire with others to drive its competitors out of business in order to create a monopoly.
Arrangements between competitors are called horizontal arrangements under antitrust law. Some of these arrangements run afoul of antitrust laws. Generally, the agreements businesses enter into are unlawful only if they are for the intentional purpose of restraining trade or gaining a monopoly in the market. Some agreements are per se illegal, however. A per se illegal relationship with a competitor is one in which no anti-competitive intention must be proved. The arrangement itself, no matter what the purpose, is against the law.
A collective refusal to deal, also called a group boycott, is a concerted decision by competitors not to do business with another business. Unlike a single company's boycott, or a boycott by consumers of a particular business, a group boycott is unlawful because it has the effect of restraining freedom of trade. Collective refusals to deal are per se violations of the antitrust laws, that is, even if the businesses do not intend to restrain competition, their group boycott violates antitrust law.
Obviously, a joint venture is not in and of itself an unlawful business action. However, depending upon the parties involved, joint ventures sometimes violate antitrust laws. If a joint venture between several competitors in a market excludes others--especially if there are more businesses included in the joint venture than those excluded--there may be an antitrust violation. For example, if all photography equipment and processing companies in Fort Lauderdale form a joint venture, excluding two independent film processing stores, the participants in the joint venture probably are engaging in unlawful business actions.
When competing businesses agree to divide up the market between themselves, they have engaged in market division. They may divide the market geographically, agreeing they will not enter the geographic area assigned to their competitors for the purpose of selling their products or services. They may divide the market by product, agreeing not to manufacture certain products so as to allow competitors to do so. They even may allocate particular customers between themselves. If the purpose and effect of dividing the market is to limit competition between them, the businesses have engaged in an unlawful antitrust activity.
Horizontal price fixing is the agreement between competitors to set their prices the same or within the same range. For example, if the major airlines meet and agree to offer a particular price on round-trip tickets to the Caribbean, they have fixed prices in contravention of the antitrust laws. Depending on the circumstances, price fixing is per se illegal.
Tying occurs generally when a company requires buyers to purchase one product or service (called the "tied" product or service) in order to obtain another product or service (the "tying" product or service), and the arrangement restrains trade. Illegal tying is a per se violation of the antitrust laws. Three elements must be present to constitute an illegal tie-in per se:
· A tying scheme must exist, in which buyers are required to buy one commodity or service in order to obtain another commodity or service
· The seller must have enough economic power in the tying product to allow it to significantly restrict the market for the tied product
· A fairly substantial amount of interstate commerce in the tied product must be affected
Tying is an antitrust concern not because it restrains competition in the tying product, but because it restrains trade in the market for the tied product. Thus, for example, a computer system manufacturer that licensed a very popular computer operating system software only to buyers of its not-so-popular computer system was held to have violated antitrust laws by unlawful tying. The manufacturer had the leverage in the market to require some purchasers to buy something they did not really want. There was a demand in the market for purchase of the products separately.
Antitrust law prohibits some actions between businesses at different levels of the market. Agreements or actions between businesses and customers, between manufacturers and distributors, or between distributors and retailers, are called vertical arrangements. As a general rule, vertical arrangements are less likely than horizontal arrangements to violate antitrust laws.
Although generally companies are free to do business with whomever they chose, some antitrust laws put a limitation on this freedom. Exclusive dealing arrangements, like market divisions, are illegal if they have the effect of lessening competition. A company that manufactures beach wear, for example, may not enter into a contract to sell its products to a retailer on the condition that the retailer refuse to carry any other lines of beach wear. The retailer should be able to carry the products of competing businesses.
If it is intended to injure competition, or if it has that effect, discriminating in price is prohibited by antitrust law. Sellers are not allowed to charge two purchasers different prices for the same product, unless it is for a lawful purpose. For instance, a sale to dispose of damaged or perishable goods is not price discrimination in contravention of antitrust law. On the other hand, it is unlawful for a petroleum distributor to offer to one gas station but not others petroleum at a discount.
Under some antitrust laws, a manufacturer requiring a distributor or retailer to sell its product at a set price is unlawful price fixing. Usually there must be a showing that the fixed resale price was required or compelled, for example, as part of a distributor agreement. Merely suggesting a resale price is not unlawful.