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Antitrust LawsAntitrust law, otherwise known as “competition law,” began at the turn of the 20th century with the passage of the Sherman Antitrust Act or the “Sherman Act” and shortly thereafter with the Clayton Act of 1914. The Sherman Act was the first U.S. Federal law regarding protection against monopolies and cartels. Named after its author, Ohio Republican Senator, James Sherman, the Chairman of the Senate Finance Committee, the Secretary of Treasury under President Rutherford Hayes, and Secretary of State under President William McKinley, the Act was unanimously passed in 1890. The Act’s purpose was to protect businesses from other businesses that would combine and potentially harm open competition. The “antitrust” moniker was used because it was trusts that the companies used to hide their illegal activities. The Acts was not intended to limit a company’s market share, but was to stop the artificial inflation of prices by trade and/or supply restrictions. Specifically, Section 1 of the Act states that "agreements, conspiracies or trusts in restraint of trade" are illegal activities. The analysis of a business activity legality under Section 1 of the acts rests on two premises; the activity unreasonably restricted trade (the Rule of Reason) or the activity was inherently illegal (illegal per se). Per se illegality cases have been generally limited to price fixing agreements or other agreements between companies that would limit trade and thereby harm consumers. Under the Rule of Reason analysis, the complained of conduct is only illegal upon proof that the defendant is doing substantial economic harm. Section 2 cases prosecuted under the Act deal with monopolies. The Act distinguishes between innocent and coercive monopolies. The law is not designed to punish companies that dominate a market or market segment, but those companies that use misconduct to dominate to the detriment of the consumer. Modern day Rule of Reason cases tend to involve what is known as the “quick look” test. That is, if the act complained of is not clearly illegal (per se), but falls somewhere in a gray area, the courts will take a “quick look” at the behavior and presume harm has occurred, which shifts to the defendant the burden of showing the business practice did not cause harm. As with any antitrust case, the market in issue must be defined in order to determine if a violation has occurred. The question becomes; what are the market and the defendant’s position in it? In order to determine if a company has violated the Act, the market share enjoyed by the defendant must be determined. If a market is broadly defined, such as all companies in the U.S. that sell widgets, it will be more difficult for the plaintiff to show an illegal dominance of that market by the defendant. Conversely, if the market is narrowly defined, such as all U.S. companies that sell widgets in Dallas, then the chances of showing an illegal dominance in that market by the defendant are greater. What are some examples of illegal business practices? Some “horizontal” agreement s among competitors can be seen as illegal if the agreements are in place to restrict competition, to fix prices or output or production. Boycotts can be illegal if the intent is to restrict competition, fix prices or keep a competitor out of the market. Agreements between competing companies to divide sales territories or allocate customers are presumed to beillegal. Also, even restrictions on advertising that have been agreed to by companies can be illegal if the result of the restriction is to withhold information from the consumer.
For more information on antitrust laws, contact a Smith & Garg attorney today at 281.210.0010 or complete our Contact Form and let us assist you with your business law services and litigation needs.
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