Life in Antitrust Times

What is Antitrust Law?

With their potential for multimillion dollar damage awards as well as their potential for restructuring entire industries (such as the telecommunications or petro-chemical industries), antitrust cases are complex high-stakes cases that often make front page news. Antitrust law was responsible for the breakup of the Standard Oil Company into numerous competitors as well as the split of AT&T from the Bell Operating Companies (e.g. Ameritech and Pacific Bell). Similarly, antitrust law was behind the U.S. government’s actions against IBM in the 1970s and against Microsoft in the 1990s. Each of these complex cases had the potential, and often the result, of causing fundamental change in basic industries in the United States.

In many of the leading antitrust cases, the courts will state that the purpose of the antitrust laws is to protect competition, not competitors. Price reductions caused by competition in the marketplace, even if they result in economic loss to one or more competitors, are not necessarily a bad or illegal result. However, the antitrust laws prohibit price reductions that are designed to drive competitors out of business. In 1999, the Justice Department filed a suit against American Airlines, alleging that the airline engaged in predatory pricing—slashing prices and increasing the number of flights offered in order to drive out low-cost competitors from a common hub in Dallas-Ft. Worth. At a news conference following the filing of the suit, Attorney General Janet Reno asserted that the government was acting to protect consumers. “It’s the public who loses out when major airlines succeed in driving out low-cost competitors,” she said. The airline responded that it was simply engaging in healthy competition and doing nothing illegal or improper.

The antitrust laws are intended to prevent the development of business monopolies and to preserve and encourage competition. Two provisions— the Sherman Antitrust Act and the Clayton Act—form the basis of our antitrust laws. The Sherman Act prevents any unreasonable anticompetitive conduct, such as interference with competitive pricing and distribution or attempts to monopolize a market. The Clayton Act prohibits price discrimination, exclusive contracts, mergers, and interlocking directorates which substantially lessen competition or tend to create a monopoly.

Anticompetitive Conduct

Actions for anticompetitive conduct can be brought by a private party or by a government agency, such as the U.S. Department of Justice (DOJ) or the Federal Trade Commission (FTC). Some types of anticompetitive conduct, such as a conspiracy to fix prices in a market, can result in criminal action against a company or an individual.

A wide range of acts can constitute anticompetitive conduct. For example, an agreement by two companies to refuse to sell certain products to a third company can be actionable. As another example, a group of small toy manufacturers accused large toy retailers of requiring that they be given priority access to items in hot demand; otherwise the small manufacturers would be excluded from prime shelf space in the stores. Similar allegations have been made in the food and beverage industry against large food product manufacturers who have allegedly tried to preserve prime shelf space for all of their products by threatening to limit the supply of their most popular products.

Another type of anticompetitive conduct that results in litigation is selling products below cost in order to obtain market share and drive a competitor out of business. For example, domestic companies will accuse off-shore manufacturers of “dumping,” or selling products in the U.S. market at prices lower than in their home market in order to gain market share. Such allegations have been made with regard to consumer electronics products, such as televisions, that are manufactured outside the country, as well as commodity items such as steel.

Other types of anticompetitive conduct include “tie-ins,” in which a manufacturer requires purchase of additional items in order to receive needed quantities of highly desired items. For example, a medical device maker may restrict purchases of a special catheter or a popular surgical device unless a hospital also agrees to purchase numerous commodity disposable items, such as surgical masks and latex gloves, from the same source. Manufacturers of semiconductors have been accused of withholding access to the latest and fastest version of a microprocessor chip for a computer unless the computer manufacturer also buys other related items such as printed circuit boards from the same source.

The Sherman Act also applies to efforts to monopolize a market or illegally use monopoly power in a market. The outcome of such litigation often hinges upon the definition of the market. The Department of Justice brought its antitrust action against Microsoft Corporation not on the premise that Microsoft had allegedly attained monopoly power with its Windows operating system, but rather that the company had illegally abused that monopoly power by requiring computer makers to use Microsoft’s Internet Explorer browser instead of the rival Netscape Communicator browser. Software developers were allegedly denied access to the most current version of Windows unless they agreed not to write software programs for products of Microsoft’s rivals.

Mergers and Acquisitions

The antitrust laws also govern mergers and acquisitions of companies through the Clayton Act, which restricts combinations that may lessen competition in a market. Some restrictions are placed on vertical integrations that involve mergers between suppliers and customers in a particular industry. For example, a vertical merger would be a combination of an oil drilling company, an oil refining company, and a retail distributor of gasoline. Horizontal mergers involve combinations at the same distribution level, such as a merger between competing brands of soft drinks or cigarettes. Anticompetitive concerns in mergers are often overcome by divesting (selling off) portions of the acquired company in either the vertical or horizontal chain of acquisition. In each case the court must evaluate the effect of the merger on competition in the relevant market.

Mergers and acquisitions are also subject to review and actions by government agencies. At the federal level, the Department of Justice and the Federal Trade Commission both review merger activity. The sheer size of the merger doesn’t necessarily determine whether the government will object to the merger. For example, the merger between Daimler-Benz and Chrysler was approved despite the fact that they make up a significant segment of the automotive industry. In contrast, the government objected to a proposed merger between Office Depot and Staples as resulting in too much concentration in the office supply products industry. Other mergers, such as those between Exxon and Mobil, obtain government approval by the divestiture of certain portions of the operations of one company.

Life as an Antitrust Lawyer

Where do antitrust lawyers work?

Antitrust lawyers work in both law firms and in government. Those who work in law firms generally work in mid-size to large law firms that have departments specializing in antitrust issues. Those lawyers who work for the government may work for either state offices (such as the state’s attorney general’s office) or federal agencies such as the Department of Justice or the Federal Trade Commission.

Many antitrust lawyers start their careers at one of the government agencies such as the DOJ or the FTC. By learning the systems of operation of those agencies and the standards applied to review of merger activity, those lawyers are well-equipped to later advise companies that need to pass their activities through review by the agencies.

Regardless of whether they start in government service or in private practice, most antitrust lawyers have a keen interest in economics and the interplay between economic theory and law. Antitrust litigation requires detailed analysis of the relevant market, including factors such as whether substitutes are available for the product or services of the alleged monopolist. Economic experts also review data to determine the effects of actions on prices and market share and the influence of other factors, such as scarcity, advertising, and technological superiority.

Who are their clients and what types of cases do they work on?

In an antitrust practice, attorneys generally represent businesses. Explains Ralph Lipshitz, of Carlton Fields in Tampa, Florida, “My clients are, for the most part, businesses of all sizes, and they operate in all segments of the economy. Especially on the counseling side of the practice, they range from local mom-and-pop enterprises to multinational conglomerates. They may be headquartered anywhere in the country. What they have in common is the need for antitrust representation in Florida.” Ralph’s focus is antitrust litigation and counseling. “Common threads to most of my cases are that they are in federal court, involve litigating with and against sophisticated counsel and business personnel, and entail a great deal of time devoted to legal strategy and factual development. They usually involve lengthy discovery, expert testimony, and a myriad of pre-trial issues and skirmishes. Especially in federal court, the litigation of antitrust cases lasts several years.”

Bill Hilgardalso specializes in antitrust law at Carlton Fields in Tampa. Most of Bill’s clients are large institutions who are involved in antitrust litigation or who come to Bill for advice on how to avoid litigation in the first place. “Many of my clients are manufacturers, utilities, financial entities, and similar organizations that have regional or national operations. They want compliance counseling (to ensure that they’re complying with federal antitrust laws) to keep them out of trouble and litigation services when they face a claim.”

Stacy Gottsford specializes in antitrust health care issues at Jones, Day, Reavis & Pogue in Washington, D.C. “My clients are hospitals, health care providers, and, more recently, HMOs and health insurance companies that provide health insurance financing services. They are located nationwide, from San Francisco to Atlanta, in both large and small cities.” Stacy reports that most of her work involves transactions. “My work involves complex transactions between competing hospitals which merge, and this is why they need antitrust lawyers.” Stacy describes a typical merger as a situation in which two non-profit hospitals [Stacy notes that 80% of hospitals are nonprofit] merge. “If they desire to merge and they are in the same market, there will be an antitrust investigation by the U.S. government and sometimes by state government.” Stacy handles matters related to the filing of the merger intention with the government and the government’s investigation of the merger.

Read More –

Share your thoughts

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s