Antitrust Law Explained
Antitrust laws…are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms.
— US Supreme Court Justice Thurgood Marshall. United States v. Topco Associates, Inc., 405 U.S. 596, 610 (1972)
Antitrust law protects competition and proscribes anti-competitive conduct. Generally speaking, conduct is anti-competitive when it unreasonably restrains free trade.
Antitrust law does not just cover mergers and acquisitions by global international firms, nor does it apply only to CEOs and other executives. It applies to anyone who is in a position to communicate with competitors or make decisions regarding competitive strategy or tactics.
It’s important to note that generally, violations of the antitrust laws occur when independent companies agree to work together, rather than compete in the free market. However, companies that independently arrive at the same decision and act accordingly generally do not run afoul of antitrust law, even for identical conduct. For example, if two independently owned gas stations coincidentally arrive at the same price for gas in response to the market, this conduct is perfectly legal. But if the gas station owners arrive at the same price as a result of an agreement among them, this is illegal “price fixing” – a clear violation of antitrust law.
First Federal Antitrust Law
The US is generally considered the first modern country to draft comprehensive legislation to address market abuses. Today, the major global antitrust laws are in the US, the European Union, and the Asia-Pacific region.
The vast body of US antitrust law originally grew in response to the market abuses of “trusts” (financial instruments by which competitors owned stock in one another’s company, held by trustees), which in turn became monopolies.
Monopolies are companies that own a dominant share of the market for specified goods or services. Because there was little or no competition in the monopoly-controlled market of turn-of-the-20th-century America, the prices of goods and services were generally high, quality was low, and, for employees of the monopolies, labor conditions were poor.
The Sherman Antitrust Act of 1890 was the first federal law drafted to address the US monopoly problem. President Theodore Roosevelt was the first president to champion “trust-busting” of monopolies he considered to be abusing their market power.
US Antitrust Law
Anti-competitive conduct violates US law even if the conduct occurs overseas. A company or agent of a company need not be in the US for US laws to apply. Generally, all that’s needed is for the act to involve commerce with the US.
The major US antitrust laws are:
(*) The Clayton Act (15 USC §12) , which prohibits mergers and acquisitions that would decrease competition or increase prices to consumers
(*) The Federal Trade Commission Act (15 USC §41), which bans unfair or deceptive methods of competition
(*) The Sherman Act (15 USC §1), which prohibits combinations or conspiracies that restrain free trade
US states may also enforce their own antitrust laws, some of which may be tougher than federal law.
US Antitrust Enforcement
The Federal Trade Commission (FTC) can impose civil penalties and the Department of Justice (DOJ) has the power to impose criminal sanctions (including imprisonment) against antitrust law violators. Private individuals may also sue to enforce specified antitrust laws.
Since the laws prohibit anti-competitive agreements to act as well as the acts themselves, words alone (whether written down or not) could be evidence of antitrust violations. For example, a sales person emailing “we’ll dominate the market” or “we’ll crush the competition” could look bad in an antitrust investigation. Of course, a single stray remark may not implicate antitrust laws. However, it’s best to avoid (and to train your sales and marketing teams to avoid) forming a habit of using such phrases, or other ambiguous or exaggerated language that’s rife for misinterpretation.
In fact, merely discussing key aspects of your business with a competitor could be interpreted as violating antitrust laws. Examples include discussions of:
(*) Prices, costs, discount policies, or terms of sale
(*) Current bids or customer quotes
(*) Marketing or product plans
(*) Geographic territories or customers
If your competitor is also a customer, antitrust law allows you to discuss details to the specific transaction. But it’s a good practice to keep unrelated business discussions general.
European Competition Law
The European Union (EU) also has laws to protect competition, which are similar to those in the US. These laws are found in the Treaty on the Functioning of the European Union (TFEU) and enforced by the European Commission. The two main TFEU laws protecting competition are:
(*) Article 101, which bans competitors from reaching agreements that restrict competition
(*) Article 102, which prohibits firms that dominate a certain market from abusing their position by charging unfair prices, limiting production, or refusing to innovate in a way that disadvantages consumers
By contrast with US antitrust law, European competition law is enforced solely by civil penalties (fines). US authorities can impose both civil and criminal penalties (including imprisonment).
Regardless of potential penalties, different acts may be considered anti-competitive under EU law than under US law.
Asian & Other Antitrust Laws
Unlike the European Union, there is no unifying body of antitrust law in Asia. The closest Asia comes to having a standardized approach to antitrust laws is in the form of the Asia-Pacific Economic Cooperation (APEC), a voluntary organization consisting of 21 member economies from the Pacific Rim, dedicated to the liberalization of trade laws. Stake-holders include China, Russia, Japan, Korea, India, and Australia. The US has reported to APEC its agreement to cooperate and share information with agencies that handle antitrust enforcement in China, Russia, Chile, Mexico, and Panama.
However, because APEC has no legal “teeth,” prudent businesses need to consult with their legal counsel for guidance on the laws of the countries in which they do business.
Why Antitrust Law Matters to Consumers
On a global scale, antitrust law helps consumers by keeping competition high, which keeps prices low, quality good, and choices many. Antitrust law also helps small businesses by preventing large, well-established companies from abusing their market power to keep competitors from entering new markets, introducing innovations, and improving on goods and services.
Why Antitrust Law Matters to You
Consider for a moment the goods and services you use each day. Perhaps you begin the day with an alarm you’ve set on your smart phone. Next, you drive your car to your favorite restaurant for breakfast. After breakfast, you take your vitamins and read the morning paper.
All of these items (your smart phone, your car, the restaurant, the newspaper, the vitamins) were made by companies subject to antitrust law. You were able to buy those products because competition, which is protected by antitrust law, enabled you to have the choices and the means to afford them.
Violations of antitrust law also affect the workplace, as illustrated by a recent case involving big pharma’s fight to extend their patents to a wakefulness drug that employees use to boost their work performance.
Note: You may be interested in visiting the European Commission’s “Delivering for Consumers” page for an entertaining and informative interaction that allows you to learn about EU competition cases by clicking on images of common household products laid out in various rooms of a home.