United States antitrust law

In the United States, antitrust law is a collection of federal and state government laws that regulate the conduct and organization of business corporations and are generally intended to promote competition. The main statutes are the Sherman Act of 1890, the Clayton Act of 1914 and the Federal Trade Commission Act of 1914. These Acts serve three major functions. First, Section 1 of the Sherman Act prohibits price-fixing and the operation of cartels, and prohibits other collusive practices that unreasonably restrain trade. Second, Section 7 of the Clayton Act restricts the mergers and acquisitions of organizations that may substantially lessen competition or tend to create a monopoly. Third, Section 2 of the Sherman Act prohibits monopolization.
Federal antitrust laws provide for both civil and criminal enforcement of antitrust laws. The Federal Trade Commission, the Antitrust Division of the U.S. Department of Justice, and private parties who are sufficiently affected may all bring civil actions in the courts to enforce the antitrust laws. However, criminal antitrust enforcement is done only by the Justice Department. U.S. states also have antitrust statutes that govern commerce occurring solely within their state borders.
The scope of antitrust laws, and the degree to which they should interfere in an enterprise's freedom to conduct business, or to protect smaller businesses, communities and consumers, are strongly debated. Some economists argue that antitrust laws, in effect, impede competition, and discourage businesses from activities that would be beneficial to society. One view suggests that antitrust laws should focus solely on the benefits to consumers and overall efficiency, while a broad range of legal and economic theory sees the role of antitrust laws as also controlling economic power in the public interest. A survey of 568 members of the American Economic Association (AEA) in 2011 found a near-universal consensus, in that 87 percent of respondents broadly agreed with the statement "Antitrust laws should be enforced vigorously."
History.
Although "trust" has a specific legal meaning (where one person holds property for the benefit of another), in the late 19th century the word was commonly used to denote big business, because that legal instrument was frequently used to effect a combination of companies. Large manufacturing conglomerates emerged in great numbers in the 1880s and 1890s, and were perceived to have excessive economic power. The Interstate Commerce Act of 1887 began a shift towards federal rather than state regulation of big business. 
Creation and early years (1890–1910s).
American antitrust law was formally created in 1890 with the U.S. Congress passage of the Sherman Antitrust Act. Using language "unequaled in its generality", the Sherman Act outlawed "monopoliz[ation]" and "every contract, combination or conspiracy in restraint of trade". 
Courts soon began struggling with the Act's broad and vague language, recognizing that interpreting it literally might make even simple business entities like partnerships illegal. American federal judges began trying to develop legal principles for distinguishing between "naked" trade restraints between rivals that suppressed competition and other restraints that were only "ancillary" to other cooperation agreements that promoted competition. 
The Sherman Act gave the U.S. Department of Justice the authority to enforce the Act's laws, but the U.S. presidents and U.S. Attorneys General in power during the 1890s and early 1900s showed relatively little interest in enforcing it. With little interest in enforcing the Sherman Act and courts interpreting it relatively narrowly, a wave of large industrial mergers swept the United States in the late 1890s and early 1900s. With the rise of the Progressive Era in the late 1900s, public officials put passing and enforcing strong antitrust high on their agenda. President Theodore Roosevelt sued 45 companies under the Sherman Act, while William Howard Taft sued almost 90.
Rise of "Rule of Reason" (1910s–1930s).
The U.S. Supreme Court reframed U.S. antitrust law as a "rule of reason" in its landmark 1911 decision "Standard Oil Co. of New Jersey v. United States". The Justice Department had sued business magnate John D. Rockefeller's conglomerate Standard Oil Company under the Sherman Act, and had successfully argued at trial that Standard Oil had violated the law by using economic threats against competitors and secret rebate deals with railroads to build a monopoly in the oil refining industry. Standard Oil appealed, but the Supreme Court ruled in favor of the Justice Department, concluding that Standard Oil's high market share was proof of its monopoly power and ordering it to break itself up into 34 separate companies. As part of its decision, the "Standard Oil" Court ruled that the Sherman Act's language outlawing "every" trade restraint actually only banned "unreasonable" restraints on trade. The Court held that the Sherman Act's provisions should be interpreted as a "rule of reason". Under this "rule of reason", most business practices would be evaluated for their competitive impact on a case-by-case basis, and only the most egregious conduct would fall under the bright-line rule of "per se" illegality.
In 1914 Congress passed the Clayton Act, which prohibited specific business actions (such as price discrimination and tying) if they substantially lessened competition. At the same time Congress established the Federal Trade Commission (FTC), whose legal and business experts could force business to agree to "consent decrees", which provided an alternative mechanism to police antitrust.
American hostility to big business began to decrease after the Progressive Era. For example, Ford Motor Company dominated auto manufacturing, built millions of cheap cars that put America on wheels, and at the same time lowered prices, raised wages, and promoted manufacturing efficiency. Welfare capitalism made large companies an attractive place to work; new career paths opened up in middle management; local suppliers discovered that big corporations were big purchasers. Talk of trust busting faded away. Under the leadership of Herbert Hoover, the government in the 1920s promoted business cooperation, fostered the creation of self-policing trade associations, and made the FTC an ally of "respectable business".
During the New Deal, attempts were made to stop cutthroat competition. The National Industrial Recovery Act (NIRA) was a short-lived program in 1933–35 designed to strengthen trade associations, and raise prices, profits and wages at the same time. The Robinson-Patman Act of 1936 sought to protect local retailers against the onslaught of the more efficient chain stores, by making it illegal to discount prices. To control big business, the New Deal policymakers preferred federal and state regulation —controlling the rates and telephone services provided by AT&T, for example— and building up countervailing power in the form of labor unions.
Structuralist approach (1930s–1970s).
The antitrust environment of the 70's was dominated by the case "", which was filed by the U.S. Justice Department in 1969. IBM at the time dominated the computer market through alleged bundling of software and hardware as well as sabotage at the sales level and false product announcements. It was one of the largest and lengthiest antitrust case the DoJ brought against a company. In 1982, the Reagan administration dismissed the case, and the costs and wasted resources were heavily criticized. However, contemporary economists argue that the legal pressure on IBM during that period allowed for the development of an independent software and personal computer industry with major importance for the national economy.
Chicago School and consumer welfare standard (1970s–present).
In 1982 the Reagan administration used the Sherman Act to break up AT&T into one long-distance company and seven regional "Baby Bells", arguing that competition should replace monopoly for the benefit of consumers and the economy as a whole. The pace of business takeovers quickened in the 1990s, but whenever one large corporation sought to acquire another, it first had to obtain the approval of either the FTC, FCC or the Justice Department. Often the government demanded that certain subsidiaries be sold so that the new company would not monopolize a particular geographical market.
In 1999 a coalition of 19 states and the federal Justice Department sued Microsoft. A highly publicized trial found that Microsoft had strong-armed many companies in an attempt to prevent competition from the Netscape browser. In 2000, the trial court ordered Microsoft to split in two, preventing it from future misbehavior. The Court of Appeals affirmed in part and reversed in part. In addition, it removed the judge from the case for discussing the case with the media while it was still pending. With the case in front of a new judge, Microsoft and the government settled, with the government dropping the case in return for Microsoft agreeing to cease many of the practices the government challenged.
Cartels and collusion.
Preventing collusion and cartels that act in restraint of trade is an essential task of antitrust law. It reflects the view that each business has a duty to act independently on the market, and so earn its profits solely by providing better priced and quality products than its competitors.
The Sherman Act §1 prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce." This targets two or more distinct enterprises acting together in a way that harms third parties. It does not capture the decisions of a single enterprise, or a single economic entity, even though the form of an entity may be two or more separate legal persons or companies. In "Copperweld Corp. v. Independence Tube Corp." it was held an agreement between a parent company and a wholly owned subsidiary could not be subject to antitrust law, because the decision took place within a single economic entity. This reflects the view that if the enterprise (as an economic entity) has not acquired a monopoly position, or has significant market power, then no harm is done. The same rationale has been extended to joint ventures, where corporate shareholders make a decision through a new company they form. In "Texaco Inc. v. Dagher" the Supreme Court held unanimously that a price set by a joint venture between Texaco and Shell Oil did not count as making an unlawful agreement. Thus the law draws a "basic distinction between concerted and independent action". Multi-firm conduct tends to be seen as more likely than single-firm conduct to have an unambiguously negative effect and "is judged more sternly". Generally the law identifies four main categories of agreement. First, some agreements such as price fixing or sharing markets are automatically unlawful, or illegal "per se". Second, because the law does not seek to prohibit every kind of agreement that hinders freedom of contract, it developed a "rule of reason" where a practice might restrict trade in a way that is seen as positive or beneficial for consumers or society. Third, significant problems of proof and identification of wrongdoing arise where businesses make no overt contact, or simply share information, but appear to act in concert. Tacit collusion, particularly in concentrated markets with a small number of competitors or oligopolists, have led to significant controversy over whether or not antitrust authorities should intervene. Fourth, vertical agreements between a business and a supplier or purchaser "up" or "downstream" raise concerns about the exercise of market power, however they are generally subject to a more relaxed standard under the "rule of reason".
Restrictive practices.
Some practices are deemed by the courts to be so obviously detrimental that they are categorized as being automatically unlawful, or illegal "per se". The simplest and central case of this is price fixing. This involves an agreement by businesses to set the price or consideration of a good or service which they buy or sell from others at a specific level. If the agreement is durable, the general term for these businesses is a cartel. It is irrelevant whether or not the businesses succeed in increasing their profits, or whether together they reach the level of having market power as might a monopoly. Such collusion is illegal "per se".
Bid rigging is a form of price fixing and market allocation that involves an agreement in which one party of a group of bidders will be designated to win the bid. Geographic market allocation is an agreement between competitors not to compete within each other's geographic territories.
Rule of reason.
If an antitrust claim does not fall within a "per se" illegal category, the plaintiff must show the conduct causes harm in "restraint of trade" under the Sherman Act §1 according to "the facts peculiar to the business to which the restraint is applied". This essentially means that unless a plaintiff can point to a clear precedent, to which the situation is analogous, proof of an anti-competitive effect is more difficult. The reason for this is that the courts have endeavoured to draw a line between practices that restrain trade in a "good" compared to a "bad" way. In the first case, "United States v. Trans-Missouri Freight Association", the Supreme Court found that railroad companies had acted unlawfully by setting up an organisation to fix transport prices. The railroads had protested that their intention was to keep prices low, not high. The court found that this was not true, but stated that not every "restraint of trade" in a literal sense could be unlawful. Just as under the common law, the restraint of trade had to be "unreasonable". In "Chicago Board of Trade v. United States" the Supreme Court found a "good" restraint of trade. The Chicago Board of Trade had a rule that commodities traders were not allowed to privately agree to sell or buy after the market's closing time (and then finalise the deals when it opened the next day). The reason for the Board of Trade having this rule was to ensure that all traders had an equal chance to trade at a transparent market price. It plainly restricted trading, but the Chicago Board of Trade argued this was beneficial. Brandeis J., giving judgment for a unanimous Supreme Court, held the rule to be pro-competitive, and comply with the rule of reason. It did not violate the Sherman Act §1. As he put it,
Mergers.
Although the Sherman Act 1890 initially dealt, in general, with cartels (where businesses combined their activities to the detriment of others) and monopolies (where one business was so large it could use its power to the detriment of others alone) it was recognized that this left a gap. Instead of forming a cartel, businesses could simply merge into one entity. The period between 1895 and 1904 saw a "great merger movement" as business competitors combined into ever more giant corporations. However upon a literal reading of Sherman Act, no remedy could be granted until a monopoly had already formed. The Clayton Act 1914 attempted to fill this gap by giving jurisdiction to prevent mergers in the first place if they would "substantially lessen competition".
Dual antitrust enforcement by the Department of Justice and Federal Trade Commission has long elicited concerns about disparate treatment of mergers. In response, in September 2014, the House Judiciary Committee approved the Standard Merger and Acquisition Reviews Through Equal Rules Act ("SMARTER Act").
Monopoly and power.
The law's treatment of monopolies is potentially the strongest in the field of antitrust law. Judicial remedies can force large organizations to be broken up, be run subject to positive obligations, massive penalties may be imposed, and/or the people involved can be sentenced to jail. Under §2 of the Sherman Act 1890 every "person who shall monopolize, or attempt to monopolize ... any part of the trade or commerce among the several States" commits an offence. The courts have interpreted this to mean that monopoly is not unlawful "per se", but only if acquired through prohibited conduct. Historically, where the ability of judicial remedies to combat market power have ended, the legislature of states or the Federal government have still intervened by taking public ownership of an enterprise, or subjecting the industry to sector specific regulation (frequently done, for example, in the cases water, education, energy or health care). The law on public services and administration goes significantly beyond the realm of antitrust law's treatment of monopolies. When enterprises are not under public ownership, and where regulation does not foreclose the application of antitrust law, two requirements must be shown for the offense of monopolization. First, the alleged monopolist must possess sufficient power in an accurately defined market for its products or services. Second, the monopolist must have used its power in a prohibited way. The categories of prohibited conduct are not closed, and are contested in theory. Historically they have been held to include exclusive dealing, price discrimination, refusing to supply an essential facility, product tying and predatory pricing.
Predatory pricing.
In theory predatory pricing happens when large companies with huge cash reserves and large lines of credit stifle competition by selling their products and services at a loss for a time, to force their smaller competitors out of business. With no competition, they are then free to consolidate control of the industry and charge whatever prices they wish. At this point, there is also little motivation for investing in further technological research, since there are no competitors left to gain an advantage over. High barriers to entry such as large upfront investment, notably named sunk costs, requirements in infrastructure and exclusive agreements with distributors, customers, and wholesalers ensure that it will be difficult for any new competitors to enter the market, and that if any do, the trust will have ample advance warning and time in which to either buy the competitor out, or engage in its own research and return to predatory pricing long enough to force the competitor out of business. Critics argue that the empirical evidence shows that "predatory pricing" does not work in practice and is better defeated by a truly free market than by antitrust laws (see Criticism of the theory of predatory pricing).
Scope of antitrust law.
Antitrust laws do not apply to, or are modified in, several specific categories of enterprise (including sports, media, utilities, health care, insurance, banks, and financial markets) and for several kinds of actor (such as employees or consumers taking collective action).
Collective actions.
First, since the Clayton Act 1914 §6, there is no application of antitrust laws to agreements between employees to form or act in labor unions. This was seen as the "Bill of Rights" for labor, as the Act laid down that the "labor of a human being is not a commodity or article of commerce". The purpose was to ensure that employees with unequal bargaining power were not prevented from combining in the same way that their employers could combine in corporations, subject to the restrictions on mergers that the Clayton Act set out. However, sufficiently autonomous workers, such as professional sports players have been held to fall within antitrust provisions.
Pro sports exemptions and the NFL cartel.
Second, professional sports leagues enjoy a number of exemptions. Mergers and joint agreements of professional football, hockey, baseball, and basketball leagues are exempt. Major League Baseball was held to be broadly exempt from antitrust law in "Federal Baseball Club v. National League". Holmes J held that the baseball league's organization meant that there was no commerce between the states taking place, even though teams traveled across state lines to put on the games. That travel was merely incidental to a business which took place in each state. It was subsequently held in 1952 in "Toolson v. New York Yankees", and then again in 1972 "Flood v. Kuhn", that the baseball league's exemption was an "aberration". However Congress had accepted it, and favored it, so retroactively overruling the exemption was no longer a matter for the courts, but the legislature. In "United States v. International Boxing Club of New York", it was held that, unlike baseball, boxing was not exempt, and in "Radovich v. National Football League (NFL)", professional football is generally subject to antitrust laws. As a result of the AFL-NFL merger, the National Football League was also given exemptions in exchange for certain conditions, such as not directly competing with college or high school football. However, the 2010 Supreme Court ruling in American Needle Inc. v. NFL characterised the NFL as a "cartel" of 32 independent businesses subject to antitrust law, not a single entity.
Media.
Third, antitrust laws are modified where they are perceived to encroach upon the media and free speech, or are not strong enough. Newspapers under joint operating agreements are allowed limited antitrust immunity under the Newspaper Preservation Act of 1970. More generally, and partly because of concerns about media cross-ownership in the United States, regulation of media is subject to specific statutes, chiefly the Communications Act of 1934 and the Telecommunications Act of 1996, under the guidance of the Federal Communications Commission. The historical policy has been to use the state's licensing powers over the airwaves to promote plurality. Antitrust laws do not prevent companies from using the legal system or political process to attempt to reduce competition. Most of these activities are considered legal under the Noerr-Pennington doctrine. Also, regulations by states may be immune under the Parker immunity doctrine.
Other.
Fourth, the government may grant monopolies in certain industries such as utilities and infrastructure where multiple players are seen as unfeasible or impractical.
Fifth, insurance is allowed limited antitrust exemptions as provided by the McCarran-Ferguson Act of 1945.
Sixth, M&A transactions in the defense sector are often subject to greater antitrust scrutiny from the Department of Justice and the Federal Trade Commission.
Remedies and enforcement.
The remedies for violations of U.S. antitrust laws are as broad as any equitable remedy that a court has the power to make, as well as being able to impose penalties. When private parties have suffered an actionable loss, they may claim compensation. Under the Sherman Act 1890 §7, these may be trebled, a measure to encourage private litigation to enforce the laws and act as a deterrent. The courts may award penalties under §§1 and 2, which are measured according to the size of the company or the business. In their inherent jurisdiction to prevent violations in future, the courts have additionally exercised the power to break up businesses into competing parts under different owners, although this remedy has rarely been exercised (examples include "Standard Oil", "Northern Securities Company", "American Tobacco Company", "AT&T Corporation" and, although reversed on appeal, "Microsoft"). Three levels of enforcement come from the Federal government, primarily through the Department of Justice and the Federal Trade Commission, the governments of states, and private parties. Public enforcement of antitrust laws is seen as important, given the cost, complexity and daunting task for private parties to bring litigation, particularly against large corporations.
Federal government.
The federal government, via both the Antitrust Division of the United States Department of Justice and the Federal Trade Commission, can bring civil lawsuits enforcing the laws. The United States Department of Justice alone may bring criminal antitrust suits under federal antitrust laws. Perhaps the most famous antitrust enforcement actions brought by the federal government were the break-up of AT&T's local telephone service monopoly in the early 1980s and its actions against Microsoft in the late 1990s.
Additionally, the federal government also reviews potential mergers to attempt to prevent market concentration. As outlined by the Hart-Scott-Rodino Antitrust Improvements Act, larger companies attempting to merge must first notify the Federal Trade Commission and the Department of Justice's Antitrust Division prior to consummating a merger. These agencies then review the proposed merger first by defining what the market is and then determining the market concentration using the Herfindahl-Hirschman Index (HHI) and each company's market share. The government looks to avoid allowing a company to develop market power, which if left unchecked could lead to monopoly power.
The United States Department of Justice and Federal Trade Commission target nonreportable mergers for enforcement as well. Notably, between 2009 and 2013, 20% of all merger investigations conducted by the United States Department of Justice involved nonreportable transactions.
International cooperation.
Despite considerable effort by the Clinton administration, the Federal government attempted to extend antitrust cooperation with other countries for mutual detection, prosecution and enforcement. A bill was unanimously passed by the US Congress; however by 2000 only one treaty has been signed with Australia. On the Australian Competition and Consumer Commission announced it was seeking explanations from a US company, Apple Inc. In relation to potentially anticompetitive behaviour against an Australian bank in possible relation to Apple Pay. It is not known whether the treaty could influence the enquiry or outcome.
In many cases large US companies tend to deal with overseas antitrust within the overseas jurisdiction, autonomous of US laws, such as in Microsoft Corp v Commission and more recently, Google v European Union where the companies were heavily fined. Questions have been raised with regards to the consistency of antitrust between jurisdictions where the same antitrust corporate behaviour, and similar antitrust legal environment, is prosecuted in one jurisdiction but not another.
State governments.
State attorneys general may file suits to enforce both state and federal antitrust laws.
Private suits.
Private civil suits may be brought, in both state and federal court, against violators of state and federal antitrust law. Federal antitrust laws, as well as most state laws, provide for triple damages against antitrust violators in order to encourage private lawsuit enforcement of antitrust law. Thus, if a company is sued for monopolizing a market and the jury concludes the conduct resulted in consumers' being overcharged $200,000, that amount will automatically be tripled, so the injured consumers will receive $600,000. The United States Supreme Court summarized why Congress authorized private antitrust lawsuits in the case "Hawaii v. Standard Oil Co. of Cal.", 405 U.S. 251, 262 (1972):
Theory.
The Supreme Court calls the Sherman Antitrust Act a "charter of freedom", designed to protect free enterprise in America. One view of the statutory purpose, urged for example by Justice Douglas, was that the goal was not only to protect consumers, but at least as importantly to prohibit the use of power to control the marketplace.
By contrast, efficiency argue that antitrust legislation should be changed to primarily benefit consumers, and have no other purpose. Free market economist Milton Friedman states that he initially agreed with the underlying principles of antitrust laws (breaking up monopolies and oligopolies and promoting more competition), but that he came to the conclusion that they do more harm than good. Thomas Sowell argues that, even if a superior business drives out a competitor, it does not follow that competition has ended:
Alan Greenspan argues that the very existence of antitrust laws discourages businessmen from some activities that might be socially useful out of fear that their business actions will be determined illegal and dismantled by government. In his essay entitled "Antitrust," he says: "No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible." Those, like Greenspan, who oppose antitrust tend not to support competition as an end in itself but for its results—low prices. As long as a monopoly is not a coercive monopoly where a firm is securely insulated from "potential" competition, it is argued that the firm must keep prices low in order to discourage competition from arising. Hence, legal action is uncalled for and wrongly harms the firm and consumers.
Thomas DiLorenzo, an adherent of the Austrian School of economics, found that the "trusts" of the late 19th century were dropping their prices faster than the rest of the economy, and he holds that they were not monopolists at all. Ayn Rand, the American writer, provides a moral argument against antitrust laws. She holds that these laws in principle criminalize any person engaged in making a business successful, and, thus, are gross violations of their individual expectations. Such laissez faire advocates suggest that only a coercive monopoly should be broken up, that is the persistent, exclusive control of a vitally needed resource, good, or service such that the community is at the mercy of the controller, and where there are no suppliers of the same or substitute goods to which the consumer can turn. In such a monopoly, the monopolist is able to make pricing and production decisions without an eye on competitive market forces and is able to curtail production to price-gouge consumers. Laissez-faire advocates argue that such a monopoly can only come about through the use of physical coercion or fraudulent means by the corporation or by government intervention and that there is no case of a coercive monopoly ever existing that was not the result of government policies.
Judge Robert Bork's writings on antitrust law (particularly "The Antitrust Paradox"), along with those of Richard Posner and other law and economics thinkers, were heavily influential in causing a shift in the U.S. Supreme Court's approach to antitrust laws since the 1970s, to be focused solely on what is best for the consumer rather than the company's practices.
While the sentiment among regulators and judges has generally recommended that breakups are not as remedies for antitrust enforcement, recent scholarship has found that this hostility to breakups by administrators is largely unwarranted.' In fact, some scholars have argued breakups, even if incorrectly targeted, could arguably still encourage collaboration, innovation, and efficiency.'