Avoiding Everyday Antitrust Law Violations

Frequently employees and executives may view antitrust law as only applicable to big businesses and mergers. However, even the smallest business and its employees may inadvertently violate antitrust law. This comment provides a brief and incomplete educational overview of antitrust law in the context of everyday business decision making. It is not intended to provide legal advice. Always consult an experienced attorney in specific situations.

Federal antitrust laws may be legally enforced by the Federal Trade Commission, U.S. Department of Justice, and private lawsuits. The basic federal statutes are the Sherman Act, Clayton Act, Robinson-Patman Act, and Federal Trade Commission Act. Additionally, there are state antitrust statutes and a variety of federal and state consumer protection statutes that may have antitrust overtones in a specific situation. The penalties for violations are quite severe including triple the amount of actual monetary damages (treble damages) and reasonable attorneys' fees, fines, criminal penalties including prison sentences, as well as injunctions and related court orders.

In a simplified overview, the chief problem areas for everyday business decisions revolve around the three Cs of competitors, customers, and contracting.

It is important to note that an individual business, acting alone without communicating directly or indirectly with a competitor, is typically free to make any free-market decision that it wishes, including paralleling the public policies of competitors. For example, a gas station is free to match the posted price of a competing gas station.

Communication or tacit agreement and coordination between competitors create problems. Agreements may be expressed or implied, direct or indirect, or signaled or funneled through third parties such as a trade organization.

Sometimes colluding businesses attempt to hide in plain sight with public statements that are to be interpreted with a wink and a nod. Words such as "discipline," "capacity," or "fairness" may become code signals between competitors. Complex communication schemes, designed to avoid detection, have been uncovered. If one is unlawfully approached by a competitor, simply refuse to communicate.

The U.S. Supreme Court has divided marketplace antitrust violations into those that are "per se illegal" and those that are judged under "the rule of reason." In per se violations, the activity is automatically illegal with no excuses or exceptions since it is deemed to be inherently destructive of the free market. Under a per se standard it makes no difference if consumers are in fact benefited or suffer no injury. Rule of reason analysis asks if there is a good justification for the action that overcomes a negative impact on competition. A good justification for the activity may or may not exist in a given situation, depending upon the judgment of the court.

Regarding Competitors:

Price fixing agreements between competitors are per se illegal.

Market division agreements that divide geographic territory or customers are per se illegal.

Agreements to do business or not to do business with certain customers or suppliers (called group boycotts) are illegal and might be judged in some situations under the rule of reason.

Regarding Customers:

Territorial and customer restrictions, such as may occur in franchising, are judged under the rule of reason.

Resale price maintenance agreements that specify the retail prices of products sold by distributors or retailers down the marketing chain are judged under the rule of reason.

Price discrimination (different prices charged) between competing customers for identical goods and services is unlawful but may be justified based upon differing production costs, differing transportation costs, a good faith meeting of a competitor's price, changing market conditions (for example, clearing-out obsolete merchandise), or retailer promotional services rendered. Hence, big box retailers almost without fail may lawfully obtain lower wholesale prices that a mom and pop retailer.

Agreements to purchase exclusively from a particular supplier (exclusive dealing contracts) are lawful unless the agreement is deemed to trend toward creating a monopoly by excluding competing suppliers from the marketplace.

Tying the ability of a buyer to purchase a product to a requirement that the buyer also purchase a different product from the seller is beginning to be judged by courts under the rule of reason. There is considerable litigation over what constitutes a separate product with the modern focus being on how consumers perceive or anticipate purchasing the products.

Regarding Contracting:

Agreements with competitors to rig bids or pass low bids around among competitors are unlawful. The losing bidder in such a scheme might receive subcontracting work from the winner as a reward for cooperating.

An Individual Employee May Be Blamed:

The Department of Justice has an Amnesty Plus program to encourage business and individual cooperation. The Federal Sentencing Guidelines for Organizations additionally encourage businesses to promptly take corrective actions when legal violations are uncovered. An employee engaged in unlawful or criminal activity on behalf of an employer should not anticipate that being loyal to the employer will generate reciprocal loyalty. Numerous news headlines proclaim that a "rogue employee," acting without the knowledge or authorization of her or his superiors, has been terminated.

Corporate civil or criminal plea bargain agreements, typically involving fines and perhaps some supervision, do not prevent individual employees from being criminally charged. A company often will act rapidly to settle a charge to minimize the impact on its stock price and to preserve federal contracting status.

Additionally, an employee must understand that corporate counsel or in-house attorneys are frequently determined to represent the corporation only, not individuals. Consequently, individual communications with corporate counsel may not fall under the attorney-client privilege and may be compelled to be revealed in court.

Directors and officers or managers liability insurance policies typically exclude criminal activity from coverage. It goes without saying that a vigorous defense against criminal charges is costly.

These few incomplete comments are designed to serve as a cautionary reminder that everyday business transactions may violate antitrust law. They do not discuss all potential violations of antitrust law and are for general educational purposes only. They are not intended to provide legal advice. Always consult an experienced attorney in specific situations.