Sometimes, we learn from our mistakes, not that we can’t do it better. Federal and state antitrust and competition laws largely responded to massive 19th-century industrial monopolies and business trusts that effectively limited or ended price competition. The US economy was held hostage to a relatively small group of industrialists who operated with financial and legal impunity.
State and federal laws cover these areas. The federal ones and their enforcement get most of the attention, but laws enforced by state attorneys general and lawsuits filed by private parties can also have a significant impact. Our friends at Focus Law LA discuss these more in depth below.
Federal Laws
The most important federal laws are the:
- Sherman Act
- Federal Trade Commission (FTC) Act
- Clayton Act
These laws state what mergers and business practices are unlawful, but in vague terms that leave courts to determine which ones break the law based on the facts of each case. Over time, and while technologies, businesses, and the economy evolve, the laws have the same goals:
- Protect economic competition to benefit consumers
- Ensure there are incentives for companies to operate efficiently
- Control prices
- Maintain quality
These laws may carry civil and criminal liabilities for violations.
- The Sherman Act
This prohibits:
- “(E)very contract, combination, or conspiracy in restraint of trade,” and
- Any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.”
The law doesn’t prohibit all trade restraints, just unreasonable ones. A business partnership restrains and limits trade to an extent (two carpenters join their businesses), but it may not unreasonably do so and violate antitrust laws (they’re the only carpenters in a county).
On the other end of the spectrum, some actions are so toxic to competition that they’re nearly always illegal. They can be businesses agreeing on who will win what bids and at what price. This would be a “per se” Sherman Act violation, so no defense or justification is permitted.
Sherman Act violation penalties can be severe. There are civil law responses to violations, and the US Department of Justice may criminally prosecute those who commit them:
- Criminal cases are usually limited to clear and intentional violations
- Penalties may be up to $100 million for a corporation and $1 million for a person, along with up to ten years in prison
- The maximum fine may double what the defendants gained from their illegal acts or twice the amount of money lost by the victims if, in either of these cases, the amount is more than $100 million
Given the possible consequences, it’s wise to consult an attorney to ensure your business’ actions comply with applicable laws.
- The Federal Trade Commission Act
The law created the FTC and prohibits “unfair methods of competition” and “unfair or deceptive acts or practices.” All Sherman Act violations also violate the FTC Act. Technically, the FTC doesn’t enforce the Sherman Act, but it can bring cases where it’s violated under the FTC Act. The FTC Act covers practices harming competition that don’t fit neatly into conduct expressly prohibited by the Sherman Act.
- The Clayton Act
This federal law:
- Covers practices the Sherman Act does not, including mergers and interlocking directorates (where one person makes decisions for competing businesses)
- Prohibits mergers and acquisitions if their effect “may be substantially to lessen competition, or to tend to create a monopoly”
- Bans some discriminatory services, prices, and allowances when merchants do business
- Requires companies planning significant acquisitions or mergers to tell the government of their plans in advance
- Allows private parties to sue for three times their damages if they’re harmed by conduct violating the Clayton or Sherman Act and obtain a court order prohibiting future anticompetitive practices
If your business takes action that may involve antitrust or competition issues, get legal help from a qualified business litigation lawyer to avoid federal, state, or civil law violations that could cost you far more than the benefits you thought you’d receive.