US ANTITRUST LAWS

 In USA competition laws are called antitrust laws.

 They include federal as well as state laws primarily aimed at fostering healthy
competition, controlling monopolies, banning abuse of dominance, prohibiting anti-
competitive practices and regulating combinations.
 Regulates the conduct and organization of business corporations, generally to
promote competition for the benefit of consumers.
 The main statutes are the Sherman Act of 1890, the Clayton Act of 1914 and
the Federal Trade Commission Act of 1914.
 These Acts serve three major functions. First, Section 1 of the Sherman Act prohibits
price-fixing and the operation of cartels, and prohibits other collusive practices that
unreasonably restrain trade. Second, Section 7 of the Clayton Act restricts the mergers
and acquisitions of organizations that would likely substantially lessen competition .
Third, Section 2 of the Sherman Act prohibits the abuse of monopoly power.
 Federal antitrust laws provide for both civil and criminal enforcement of antitrust laws.
The Federal Trade Commission, the Antitrust Division of the U.S. Department of Justice,
and private parties who are sufficiently affected may all bring civil actions in the courts
to enforce the antitrust laws.
 However, criminal antitrust enforcement is done only by the Justice Department. U.S.
states also have antitrust statutes that govern commerce occurring solely within their
state borders.

 There are three main harmful methods of limiting competition: colluding with rivals in a
market, merging with rivals or potential rivals, and using anticompetitive techniques to
exclude existing or potential entrants.
 U.S. antitrust laws are designed to prevent these behaviors by making price-fixing, bid-
rigging, and similar behavior illegal, requiring government review of mergers to prevent
those that lessen competition, and prohibiting anticompetitive conduct by an incumbent
with market power that tends to exclude entrants and rivals.
 Antitrust laws are acts adopted by the U.S. Congress to restrict unfair or monopolistic
trade practices. The laws all share the same basic objective – to ensure free trade and a
competitive economy by preventing price fixing and unlawful restraint of trade; and to
 encourage healthy competition and improved market efficiency. The primary U.S.
Antitrust Acts include:

 The Sherman Antitrust Act of 1890: The first major legislation passed by Congress
to address the oppressive business practices of the late 1800s. The Sherman Antitrust
Act and its amendments form the foundation for most federal and state antitrust
legislation. It provides that no person shall monopolize, attempt to monopolize or
conspire with another to monopolize interstate or foreign trade commerce, regardless of
the type of business entity.
 Standard Oil Company of New Jersey v. USA
 The Clayton Act of 1914: An amendment to clarify and supplement The Sherman Act
as well as provide stronger enforcement capabilities. The Clayton Act was the first
federal statute expressly prohibiting certain forms of price discrimination.
 The Federal Trade Commission Act of 1914: Created the Federal Trade
Commission and initially authorized it to issue "cease and desist" orders to large
corporations in order to curb unfair trade practices. Today, all federal Antitrust Laws are
enforced by the Federal Trade Commission and the Antitrust Division of the Department
of Justice.
 The Robinson-Patman Act of 1936: Amended the statutes within the Clayton Act
that related to price discrimination. Specifically, it prohibits a seller of commodities from
selling comparable goods to different buyers at different prices (with certain exceptions).
 The Celler-Kefauver Act of 1950: Called by some "The Antimerger Act", it reformed
and strengthened the Clayton Antitrust Act by prohibiting buying up a competitor’s
assets if the result of that activity was reduced competition.
 The Hart-Scott-Rodino Antitrust Improvements Act of 1976: Required that
companies planning large mergers or acquisitions to notify the government of their
plans in advance and established the Premerger Notification Program.
 All Statutes Administered by the FTC: "Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005", "College Scholarship Fraud Prevention Act of 2000", and
"Identity Theft Assumption and Deterrence Act of 1998", to name a few.
 16 CFR: Title 16 of the Code of Federal Regulations (CFR) encompasses the Federal
Trade Commission rules and regulations
 Federal Register Notices: Federal Trade Commission's regulatory notices
 Trust - where one person holds property for the benefit of another
 In the late 19th century the word was commonly used to denote big business, because
that legal instrument was frequently used to effect a combination of companies. Large
manufacturing conglomerates emerged in great numbers in the 1880s and 1890s, and
were perceived to have excessive economic power.
 Technically, a trust is a legal device used to coordinate multiple property owners
through a unified management structure.
 Business owners combine their interests into a single legal entity—the trust. The various
owners appoint a trustee (or multiple trustees) to act in the interest of the collective
owners, and the individual owners retain dividend shares in the trust.
 A trust can be established within a single firm—a form known as a voting trust—to unite
majority shareholders for the purpose of controlling management decisions.
Alternatively, a trust can be set up to coordinate multiple, separately owned firms,
operating like a combination or cartel.
 The use of trusts for industrial consolidation multiplied throughout the 1880s, and in
response, several states and the federal government passed antitrust laws to regulate
business competition, focusing on coordination among firms and business tactics used to
monopolize industries.
 In the late nineteenth-century competition policy developed to counterbalance
concentrated economic power, which reformers feared might be wielded to influence
political outcomes or trammel independent proprietors with unfair business tactics.
 Ensuring market competition had once been the province of judges through their
enforcement of common law prohibitions against “restraints of trade,” as well as state
corporation laws regulating business actions and internal governance. However, as new
communication and transportation technologies facilitated business combinations that
traversed state lines, state laws appeared increasingly inadequate. States retained their
regulatory power over corporations, but the Sherman Antitrust Act of 1890 promised to
“rein in the trusts” through federal prosecutions.
 Over the next century, observers often asserted that the Sherman Act provided
inadequate relief against anticompetitive behaviors, and consequently, amendments to
the antitrust laws followed. Progressive Era state building contributed to the formation
of the Federal Trade Commission in 1914 and the passage of new laws against unfair
 competition that dictated industry-specific rules and regulations to govern trade
practices. In response to the economic depression of the 1930s, President Franklin D.
Roosevelt’s administration experimented with state-sanctioned cartelization of the
national economy. The failure of those policies to stem the Great Depression led to their
reversal by the late 1930s, encouraging some historians to declare the “end of reform”;
however, antitrust regulation and enforcement did not disappear from political debate or
court dockets.
 Perhaps the most significant change in antitrust jurisprudence occurred in the 1970s
when stringent antitrust enforcement triggered a backlash that transformed law and
policy. In an attempt to remove progressive or populist political preferences from
antitrust legal analysis, new economic thinking associated with the Chicago school of law
and economics argued that maximizing consumer welfare should be the sole goal of
antitrust law. As a result, many business practices once considered anticompetitive
became legal. The applications of antitrust law narrowed, and the judiciary became less
interventionist in policing market transactions. Contemporary US competition policy is
generally explained as the attempt to maximize consumer welfare—or put differently,
the attempt to get the greatest number of goods to customers, reliably, at the lowest
cost. The older concerns with safeguarding against undue political influence or
preserving a high threshold of market competitors has largely disappeared.
 Over the past few decades, these laws have not been operating in a way that generates
and preserves vigorous competition in U.S. markets.
 Evidence that antitrust laws are falling short is plentiful. Many cartels go undiscovered,
and tacit collusion is probably even more prevalent because it is harder for antitrust
enforcers to prosecute and deter.
 Anticompetitive horizontal mergers (between rivals) appear to be underdeterred. A
variety of clever strategies used by incumbents to exclude entrants, either by purchasing
them when they are nascent or using tactics to confine them to a less threatening niche
or forcing them to exit have been successfully deployed in recent years, often when
antitrust enforcement is late or absent.
 U.S. antitrustlaws need to be strengthened, particularly in the area of mergers and
exclusionary conduct, and a new digital regulatory authority that would enforce privacy
 laws and create conditions conducive to competition would improve outcomes in digital
markets.
 Antitrust, observed the historian, once was the subject of a progressive movement in the
U.S. that stirred public agitation and imagination, despite few antitrust prosecutions.
 By the 1960s, there were many antitrust prosecutions (by both Democratic and Republican
administrations), but without any antitrust movement. Fifty years later, the U.S. has neither
an antitrust movement nor much enforcement. That needs to change.
 1900–1920. After initial administrative neglect and judicial hostility, this era ushered in the
promise of antitrust with the breakup of Standard Oil and the enactment of the Clayton
and Federal Trade Commission Acts to prevent the formation of trusts and monopolies.
 1920s–1930s. Antitrust activity was rare since administrations generally preferred
industry-government cooperation (and, during the early New Deal, economic planning
and industry codes of fair competition), over robust antitrust enforcement.
 1940s–late-1970s. Antitrust came to represent the Magna Carta of free enterprise – it was
seen as the key to preserving economic and political freedom.
 Late-1970s–mid-2010s. Antitrust contracted under the Chicago and post-Chicago Schools’
neoclassical economic theories.

THE SHERMAN ANTITRUST ACT, 1890

 Outlaws trusts, monopolies and cartels

 Aim – to increase economic competitiveness
 As a means to regulate interstate commerce, the law is a broad and sweeping attempt
to address the use of trusts as a tool for placing the control of a number of key
industries into the hands of a limited number of individuals.
 Proposed in 1890 by Senator John Sherman
 Amended in 1914 by Clayton Act
 In the 19th century, "trust" became an umbrella term for any sort of collusive or
conspiratorial behavior that was seen to render competition unfair. It was designed not
to prevent monopolies achieved by honest or organic means, but those which resulted
from a deliberate attempt to dominate the marketplace. It especially targeted big
corporations operating in multiple states, as Congress justified their radical new
regulations on their constitutional right to regulate interstate commerce.
 The Sherman Antitrust Act is broken down into three sections. Section 1 defines and
bans specific means of anticompetitive conduct. Section 2 addresses the end results that
are by their nature anti-competitive. As such, Sections 1 and 2 Act to prevent the
violation of the spirit of the law while still remaining within its bounds. Section 3 extends
the guidelines and provisions in Section 1 to the District of Columbia and U.S. territories.
 The legislation was passed at a time of extreme public hostility towards large
corporations like Standard Oil and the American Railway Union which were seen to be
unfairly monopolizing certain industries.
 It thus gained immense popularity
 Section 1 – Trusts etc. in restraint of trade illegal – penalty imposed fine and/or
imprisonment (Refer to concept of restraint of trade in US)
 This section subject to immense interpretation by Court. – Rule of reason formulated
and applied.
 Section 2 – Monopolizing trade – felony – penalty – covers transborder monopolization
also
 Jurisdiction to enforce the Act given to US Justice Department
 Sherman Act though set a milestone in the codification of Competition law – provisions
were subject to interpretation by court – especially with regard to restraint of trade –
only these 2 anti-competitive practices were addressed – changing economy required a
revisal of the laws.
 This led to the enactment of the Clayton Act, 1914
 The Act authorizes the Department of Justice to bring suits to enjoin (i.e. prohibit)
conduct violating the Act, and additionally authorizes private parties injured by conduct
violating the Act to bring suits for treble damages (i.e. three times as much money in
damages as the violation cost them).
 Violations under The Sherman Act fall within the categories of Per se illegality or Rule of
Reason.
 Violations Per se : These are violations that meet the strict characterization of Section 1
("agreements, conspiracies or trusts in restraint of trade"). A per se violation requires no
further inquiry into the practice's actual effect on the market or the intentions of those
individuals who engaged in the practice. Conduct characterized as per se unlawful is that
 which has been found to have a "'pernicious effect on competition' or 'lack[s] . . . any
redeeming virtue'"
 Violations against Rule of reason : A totality of the circumstances test, asking whether
the challenged practice promotes or suppresses market competition. Unlike with per se
violations, intent and motive are relevant when predicting future consequences. The rule
of reason is said to be the "traditional framework of analysis" to determine whether
Section 1 is violated. The court analyzes "facts peculiar to the business, the history of
the restraining, and the reasons why it was imposed," to determine the effect on
competition in the relevant product market. A restraint violates Section 1 if it
unreasonably restrains trade.
 Quick look analysis : A "quick look" analysis under the rule of reason may be used when
"an observer with even a rudimentary understanding of economics could conclude that
the arrangements in question would have an anticompetitive effect on customers and
markets," yet the violation is also not one considered illegal per se. Taking a "quick
look," economic harm is presumed from the questionable nature of the conduct, and the
burden is shifted to the defendant to prove harmlessness or justification. The quick-look
became a popular way of disposing of cases where the conduct was in a grey area
between illegality "per se" and demonstrable harmfulness under the "rule of reason".
 A commentary on the Act was given in Apex Hosiery Co. v. Leader, 310 U.S. 469

THE CLAYTON ANTITRUST ACT, 1914

 Enacted in response to the criticism faced by Sherman Act

 Reduced the interpretative power of Courts with regard to provisions in the Sherman
Act.
 Extended the scoop of anti-competitive practices recognized under law.
 Primary goal – strengthening the Sherman Act
 Due to the weaknesses in Sherman Act it was impossible to fully prevent anti-
competitive business practices.
 Introduced by Sir Henry Clayton of Alabama – signed by President Woodrow Wilson
 Expanded the list of prohibited business practices – price fixing, exclusive dealing, price
discrimination, unfair practices
 1880s and 90s huge economic growth in US – attracted large scale immigrants –
immigrants largely employed in growing industries railroad, mining etc.
 Combinations, mergers, acquisitions, monopolies etc. prevalent
 Began abusing the economic market – small businesses could not come up – they called
in for regulation of the economic market and free trade
 Two sections of the Clayton Act were later amended by the Robinson-Patman Act (1936)
and the Celler-Kefauver Act (1950) to fortify its provisions. The Robinson-
Patman amendment made more enforceable Section 2, which relates to price and other
forms of discrimination among customers. The Celler-Kefauver Act strengthened Section
7, prohibiting one firm from securing either the stocks or the physical assets (i.e., plant
and equipment) of another firm when the acquisition would reduce competition; it also
extended the coverage of antitrust laws to all forms of mergers whenever the effect
would substantially lessen competition and tend to create a monopoly.
 Earlier legislative measures had simply restricted horizontal mergers—those involving
firms that produce the same type of goods. In contrast, the Celler-Kefauver Act went
further by restricting even mergers of companies in different industries (i.e.,
conglomerate mergers). The Clayton Act and other antitrust and consumer
protection regulations are enforced by the Federal Trade Commission and the US Justice
Department.
 The Clayton Antitrust Act also protects individuals by allowing lawsuits against
companies and upholding the rights of labor to organize and protest peacefully.
 In addition, the Clayton Act specifies that labor is not an economic commodity. It
upholds issues conducive to organized labor, declaring peaceful strikes, picketing,
boycotts, agricultural cooperatives, and labor unions were all legal under federal law.
 There are 26 sections to the Clayton Act. Among them, the most notable include:
 The second section, which deals with the unlawfulness of price discrimination, price-
cutting, and predatory pricing.
 Exclusive dealings or the attempt to create a monopoly, which is addressed in the third
section.
 The fourth section, which states the right of private lawsuits of any individual injured by
anything forbidden in the antitrust laws.
 Labor and the exemption of the workforce, which are covered in the sixth section.
  The seventh section, which handles mergers and acquisitions and is often referred to
when multiple companies attempt to become a single entity.
 The act was also amended by the Hart-Scott-Rodino Antitrust Improvements Act of
1976. This amendment made it a requirement that companies planning big mergers or
acquisitions make their intentions known to the government before taking any such
action.

THE FEDERAL TRADE COMMISSION ACT, 1914

 Established FTC as the enforcement mechanism under competition law along with the
US Justice Dept.
 Supplements both the previous legislations
 Outlaws unfair activities and practices affecting trade
 Violations under the above Acts will also violate FTC Act
 Power of cease and desist given to commission