Federal Antitrust Laws
Enforcement of antitrust laws is vital for protecting consumers from predatory business practices and ensuring a level playing field for all businesses. It encourages companies to compete based on the quality, price, and innovation of their products and services rather than through underhanded or coercive tactics.
Effective enforcement prevents the formation of monopolies and oligopolies that can dictate market terms, leading to higher prices and fewer choices for consumers.
America's antitrust policies are based on three key laws: the Sherman Act, The Federal Trade Commission Act, and the Clayton Act.
These laws prohibit agreements or practices that restrict free trading and competition between businesses, prevent abuse of monopoly power, and ensure no unfair constraints are placed on an individual's ability to engage in business.
When these laws are violated, it can have severe repercussions for other businesses, consumers, and the economy in general. For this reason, violations can result in stiff fines and, in some cases, even imprisonment.
The Antitrust Division at the United States Department of Justice (DOJ) enforces federal antitrust and competition laws. These laws prohibit anticompetitive conduct and mergers that deprive American consumers, taxpayers, and workers of the benefits of competition.
The Antitrust Division also enforces other federal laws to combat illegal activities related to anticompetitive conduct, including offenses that impact the integrity of an antitrust or related investigation.
Some examples include conspiracies to defraud the United States, mail fraud, wire fraud, money laundering, kickbacks, false statements to federal agents, perjury, obstruction of justice, bribery, and other related crimes. Let's look at the three key antitrust laws and their implications for businesses.
The Sherman Act of 1890
The Sherman Act is the cornerstone of antitrust law in the United States. It addresses and prohibits specific anti-competitive business activities, including monopolization and attempts to monopolize any part of trade or commerce among the several States or foreign nations.
Simply put, this law prohibits conspiracies that unreasonably restrain trade. Under the Sherman Act, competition agreements to fix prices or wages, rig bids, or allocate customers, workers, or markets are criminal violations.
Other agreements, such as exclusive contracts that reduce competition, might violate the Sherman Antitrust Act and are subject to civil enforcement. Further, the Sherman Act makes it illegal to monopolize, conspire to monopolize, or attempt to monopolize a market for products or services.
An unlawful monopoly exists when only one firm has market power for a product or service and has obtained or maintained that market power not through competition on the merits but because they have suppressed competition by engaging in anticompetitive conduct. Monopolization offenses can be prosecuted criminally or civilly.
Key Provisions
- Section 1 prohibits specific types of agreements among competitors that unreasonably restrain competition, including price fixing, bid rigging, and market division.
- Section 2 deals with the conduct of single firms that monopolize or attempt to monopolize a market, focusing on the abuse of monopoly power rather than the mere possession of that power.
The Clayton Act
Designed to supplement the Sherman Act, the Clayton Act addresses specific practices that the Sherman Act does not explicitly prohibit.
It mainly focuses on mergers and acquisitions that may significantly reduce market competitiveness and other behaviors leading to decreased competition.
This federal law is designed to promote fair competition and prevent unfair business practices that could harm consumers. It prohibits specific actions that may restrict competition, like tying agreements, predatory pricing, and mergers that could lessen competition.
An “illegal merger” occurs when two companies join together in a manner that might substantially lessen competition or tend to create a monopoly in a relevant market.
This reduction in competition could harm consumers by potentially leading to higher prices or fewer choices for products or services. It can also harm workers by potentially leading to lower wages or fewer choices for employment.
Key Provisions
- Section 7 prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly."
- Section 8 prohibits the same person from making decisions in the business of two or more competing corporations if such a practice would substantially lessen competition.
The Federal Trade Commission Act of 1914
The Federal Trade Commission Act of 1914 established the Federal Trade Commission (FTC) to administer antitrust laws. It focuses on preventing unfair methods of competition and unfair or deceptive acts affecting commerce.
Unlike the Sherman Act, the FTC Act does not carry criminal penalties. Still, it allows the FTC to take action against "unfair methods of competition" and "unfair or deceptive acts or practices."
The FTC can issue cease and desist orders and impose civil penalties for violations. It plays a critical role in guiding businesses about practices that might be considered unfair or deceptive. Under the Federal Trade Commission Act, the Commission is empowered to do any of the following:
- Prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce.
- Seek monetary relief and other forms of relief for conduct detrimental to consumers.
- Prescribe rules defining with specificity acts or practices that are unfair or deceptive.
- Establish requirements to prevent such acts or practices.
- Gather information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce.
- Make reports and legislative recommendations to Congress and the public.
What are the Possible Penalties for Violations?
The consequences of being convicted of an antitrust offense can be severe, including civil and criminal penalties.
Criminal Penalties
- Individual penalties can include up to 10 years in federal prison and fines of up to $1 million per violation.
- Corporations may face fines of up to $100 million per violation. However, under the Alternative Fines Act, these could be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either of these amounts is greater than the statutory maximum.
Civil Penalties
Companies found in violation of antitrust laws may also face civil penalties, including triple damages to be paid to those harmed by the breach and injunctive relief to prevent future violations.
What are the Common Defense Strategies?
Defending against antitrust charges often requires a multifaceted approach, leveraging several possible legal defenses:
- No Illegal Agreement: This defense argues that no agreement or concerted action violated antitrust laws.
- Lack of Market Power: Defendants may argue that they lack sufficient market power to negatively affect competition, which is crucial for charges under Section 2 of the Sherman Act concerning monopolization.
- Pro-competitive Justifications: Certain anti-competitive actions can be justified with pro-competitive benefits. For example, some mergers can lead to efficiencies that benefit consumers more than the potential harm from reduced competition.
- Compliance Programs: Showing that the company has an active antitrust compliance program can sometimes help mitigate penalties or serve in defense against claims of intentional wrongdoing.
Contact our federal criminal defense lawyers at Eisner Gorin LLP, based in Los Angeles, California for more information.
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