Antitrust laws are essentially a series of highly interpretable and ever-changing guidelines meant to encourage stable competition between businesses; in essence they are laws to protect against anti-competitive monopolists and conspiracies.
US antitrust law is essentially competition law. The term “antitrust” refers to the colossal trusts which were set up in the US in the late 1800s to control entire markets for petroleum, transport, banking, rail and other industry sectors. However, these trusts undermined free market economics by restricting competition, and the US antitrust laws were enacted to redress this issue.
Consequently it is fair to say that defending the right of businesses to compete is the true purpose of antitrust law. An anticompetitive practice that is harmful to a business or its customers will find no antitrust law protection. The antitrust laws come only into effect when competitors collude with one another to undermine legitimate competition; or one of more competitors attempt to exclude another competitor to create or preserve a monopoly on their position; or if a proposed merger, acquisition or exclusive supplier agreement threatens to reduce competition in an unacceptable manner. In each of these instances there is a threat that the predatory corporate could increase prices without this having an effect on demand since the consumer has no-one else to purchase the goods from. This, in effect, distorts competition by creating markets for goods that do not respect the law of demand – a basic economic law, which states that consumers purchase an increased amount of goods and services when the price decreases and buy less when it increases.
In order to protect the above aims, the antitrust laws are worded in an open-ended language so as to be able to respond if required to the actions of any predatory business. The antitrust laws effectively are the antitrust statutes which form the bare-boned frameworks behind the courts dressing for justice. Courts have tried to give meaning to these statutes in case law for over a century, often with contradictions in rulings. But it is only when cases are brought to court by an aggrieved private individual or a government prosecutor that the application becomes clearer and the statutes are given meaning to offer effective redress. It is therefore advisable for corporations to seek out the relevant antitrust experts who are experienced in dealing with such matters.
The antitrust statutes are generally believed to be unable to forbid anti-competitive conduct in advance of the occurrence of that conduct. On this basis the statutes fail the first test of all laws. However, despite this lack of law-like features, the statutes do offer effectual redress against voracious competitors. This is a similar concept to the UK law of equity, where remedy does indeed occur as and when required.
The US antitrust laws can therefore be said to be subjective with an ability to change with time. It is for this reasons that the antitrust statutes through the actions of the courts and the regulators can sufficiently protect legitimate corporates from predatory ones. Hence, the antitrust statutes are best viewed as a constitution for competitiveness, laying down broad principles rather than prescribed rules.
US Antitrust Law—aka competition law – originated from trusts in US in 1800s.
Antitrust laws composed of – widely drafted antitrust statutes – given meaning through case law.
The underlying purpose of the antitrust laws is to promote effective and stable competition and prohibit anti-competitive monopolists and conspiracies. A brief look at both the civil and criminal antitrust convictions will help executives understand the importance of protecting ones company and the significance of managing ones risk.
Civil antitrust punishments
An antitrust offender sued in the civil courts faces paying three times the proven harm caused by the offence (i.e. damages), including all associated legal fees and costs. Given the bare-boned antitrust statutes, points of theory, so called antitrust economics, often carry large weight within US antitrust cases. These theoretical points rest with the law professors and economists, whose cost is also borne by the offender. What’s more, an antitrust defendant, even if their case prevails, cannot recover legal costs unless the case can be demonstrated to be frivolous which is not easy nor common. During the course of a trial, the antitrust offender may even be ordered to suspend certain business practices while legal proceedings are in progression. Worse yet, should the claimant emerge victorious, this temporary suspension could be made permanent. This is known as the antitrust offender being enjoined.
Anti- competitive behaviour in business is not unusual and can happen to anybody quite easily, in fact, corporations often do not realise they have acted in conflict with US antitrust laws. These outcomes show the importance of obtaining the best legal advice at the earliest possible stage. Established US antitrust professionals Kirkland & Ellis have over a century’s worth of expertise in representing both claimants and defendants in high profile US antitrust cases.
Criminal antitrust punishments
Criminal prosecutions principally concern price-fixing, horizontal market allocations, bid-rigging and other antitrust wrongdoing. The government must prove each element of the alleged offence beyond a reasonable doubt and must prove the defendant acted with criminal intent. At the most serious level, the alleged offenders of the per se violations of Section 1 of the Sherman Act may see their directors and employees personally charged, tried and convicted. Found guilty, corporates can be ordered to pay enormous restitution costs and fines, whereas an individual could face both of these including up to ten year in federal prison.
Civil punishment:
Damages x3
Legal fees and costs
Experts’ costs
Enjoinment
Criminal punishment:
Enormous restitution costs
Fines
+ individuals face up to 10yrs in federal prison
The two principle antitrust offences are:
1. Monopolisation; and
2. Conspiracy to restrain trade
But there is a third offence, which is defined as “abuse of dominant position.” Although the third offence is not forbidden under US antitrust laws expressly, it is nonetheless part of the competition laws of the EU and Canada and can therefore affect US businesses who function internationally. US claimants may consequently argue that it is misuse of an existing monopoly to establish a new monopoly or an attempt to do so. There are also more technical antitrust offences such as exclusive supplier arrangements. But as the purpose of these is to monopolise the market, they fall under the principle of the monopolisation offence.
1. Monopolisation.
The offence of monopolisation covers monopolisation itself, attempted monopolisation and the conspiracy to monopolise. Monopolisation is the act of one company destroying or impairing ones competition deliberately with the ultimate objective to gain a dominating power over the goods and services its sells. Monopoly power is the ability to raise prices and reduce output indefinitely without any intervention from another supplier offering the goods at a reduced price. But not all acts of this controlling power are in conflict with the US’ antitrust laws. The monopoly power must be over a certain line of goods and services for which there is no readily available substitute.
Thus it is about where to draw the circle as it may be termed. For example, there is a readily available substitute hair gel, hair wax or mousse. But there is no substitute for hair products as a whole, so the circle would be drawn here. A restriction to cover this circle, i.e. the sector of the market would be deemed a monopoly. Meanwhile, a claimant may be an excluded competitor, a suffering customer or a class of suffering customers.
In order to prove monopolisation, one must prove the “relevant product and geographical market” in relation to where the monopolisation is deemed to have occurred. Thus the claimant must establish the proper definition of the relevant market and then show that the alleged monopolist possessed a monopoly in this market; that the monopolist acquired or maintained its monopoly by employing anti-competitive practices that excluded its rivals from the market; and that the claimant suffered losses in direct consequence of these anti-competitive exclusionary practices.
The monopolisation offences are set out in Section 2 of the Sherman Act and the cases building on the statutory text.
2. Conspiracies to Restrain Trade
The offence of conspiracies to restrain trade covers both conspiracies to retain trade itself and “per se” restraints of trade.
The conspiracy to restrain trade applies to a scenario where two or more companies act together to control trade in a certain business. In order to prove this offence one must yet again prove the “relevant product and geographical market” in which the two or more companies have formed a conspiracy to restrain trade. Often the conspiracy itself needs to be little more than a mutual understanding.
For proving a “per se” restraint of trade, the “relevant product and geographical market” do not need to be proven. It is sufficient to establish that the conduct itself constitutes the offence “per se,” as seen in horizontal price-fixing, bid-rigging, and horizontal group boycotts.
US antitrust laws are set out in federal statutes which address interstate business. There are then state statutes in almost every US state which merely seek to codify federal antitrust standards into state law to address intrastate business. Given the expansive interpretation afforded to the term “interstate” the majority of trade transactions will be deemed to fall under the remit of the federal laws and therefore a thorough grasp of federal antitrust law is essential even if litigating at state level. Kirkland & Ellis’ comprehensive expertise in antitrust litigation at both state and federal level is therefore seen as most valuable to both existing and prospective clients.
The Sherman Act
The Sherman Act is the foremost antitrust statute in the US at federal level and acts as the constitution to competition law itself. It provides civil remedies and criminal penalties for antitrust violations including conspiracies to restrain trade, monopolisation, attempted monopolisation and conspiracy to monopolise. The broad open language of the act prevents predatory corporations from taking advantage through affording the courts excessive discretion in interpretation and application. A century of case law now has clothed this bare-boned statute, and it is essential for every antitrust lawyer to be familiar with these at both US Supreme Court and local appellate circuit level.
The Clayton Act
This federal statute in its current amended form restrains proposed mergers and acquisitions and in many respects builds on the constitutional nature of the Sherman Act, prohibiting actions by predatory companies which endeavor to stifle competition. The Clayton Act also sets forward civil remedies and grants the courts the pro-active power of being able to enjoin conduct which is anti-competitive before it actually causes any harm.
The Robinson-Patman Act
The Robinson-Patman Act is a federal statute that prohibits price discrimination and price fixing in a very technical form, which runs contrary to the bare-boned nature of the Sherman Act. Whilst this prescriptive nature may be seen as advantageous to offering more flesh to work with, it is also a hindrance as courts are often faced with the difficulty of applying the overly technical nature of the act to fit the case at hand.
The Federal Trade Commission Act
This federal statute may be seen as a catch-all statute. It is this statute that saw the establishment of the Federal Trade Commission (FTC) which along with the Department of Justice-Antitrust Division (DOJ Antitrust) have broad investigatory powers to uncover violations of the antitrust laws through express statutory authority to enforce the above mentioned antitrust statutes.
The Hart-Scott-Rodino Act
The Hart-Scott-Rodino Act is a federal statute which imposes disclosure requirements for certain kinds of mergers and acquisitions. They are then investigated by the FTC or the DOJ-Antitrust and either declined or granted full or conditional approval.
Given the fact that antitrust statutes are drafted in a very general language, (e.g. it is an offence to conspire to restrain trade) they have little practical meaning until they are enforced by the courts. The prudent executive on behalf of their business should therefore appreciate that in order to understand US antitrust law it is necessary to look well beyond the mere statutes. This is where the experience of internationally respected antitrust experts will be beneficial. Expert legal counsel can play a vast role in helping to decipher case law, shedding light on the ongoing meaning and offer a thorough grasp of antitrust economics usually seen debated in case law by economists and law professors across the US.
Kirkland & Ellis LLP are a globally renowned law firm in the field of antitrust law. They are indisputably a go-to firm for the most complex cases concerning US Antitrust laws. The firm’s team provides extensive know-how in all matter regarding US and international anti-competition laws. Kirkland and Ellis’ has been the lead trial counsel in civil antitrust for clients such as General Motors, ExxonMobil, Bain Capital, Cisco, Colgate, United Airlines and Pioneer to name but a few. Kirkland has also handled class action price fixing cases including, among others, Vitamins, Bananas, Chocolate candy and ready mix concrete. The highly respected practice has moreover represented public companies and private equity firms in the antitrust aspects of spin-offs and consolidations.
Kirkland and Ellis is continually recognised as one of the elite players. Its antitrust litigation practice is regarded as among the foremost in the US as it is known for its strengths in Washington DC and Illinois. Described by its clients as a powerhouse, Kirkland’s antitrust litigation practice has seen it defend Bain Capital as one of several private equity houses to be accused to have colluded when buying public companies in take-private transactions. These premier strengths have seen Kirkland turn to expand and establish a leading presence in both New York and California.
All in all, Kirkland’s antitrust litigation practice offers clients a century of litigation experience with excellent results led by a core group of the very best practical trial lawyers.
Kirkland represented Avis Budget Group resulting in its success in pushing Hertz out of a deal to purchase smaller rival Dollar Thrifty Automotive Group in a matter valued at approximately $1.5bn. Antitrust played a pivotal role here because it was only after antitrust concerns served as a basis for multiple rejections of what was otherwise a clear overbid by Hertz, that Avis Budget Group’s offer was finally accepted. It was only after Avis Budget Group at last provided a reverse termination fee -which they were so reluctant to provide in all previous bids in order to protect against antitrust risk -that their bid was accepted.
Kirkland’s litigation strength speaks for itself and it continues to defend Bain Capital in the high profile alleged collusion. Bain Capital along with several other private equity firms including Carlyle Group, Blackstone and KKR are accused of colluding to reduce the value of buyout targets in take-private transactions. The claimants bringing the action are shareholders of the acquired companies who are submitting that Bain has been party to dominating the leveraged buyout market and fixing prices at artificially low levels.
These actions, it is claimed, were a result of submitting sham bids, agreeing not to submit bids, granting management incentives and including losing bidder in the final transaction. These allegations have been criticised for many reasons including the fact that losing bidders would end up paying more, which would then question how they could reduce prices. Additionally, leveraged buyouts in the region of $10bn cannot be achieved by any fund acting alone. This means that many of the take-privates would have never occurred if some form of consortium had not been allowed to take place. The court has so far reached the conclusion that leveraged buyouts are indeed within the reach of the antitrust legislation despite being regulated by the SEC. This may be viewed as a prime example of the court further dressing the bare-backed Sherman Act once again. The claimants have now been given until April 2012 to present further evidence of 10 more deals up for scrutiny along with the 17 already under the limelight. This case may come down once again to who has kept the most records. The motto in antitrust law is certainly one of keep everything, destroy nothing.