Holding Court is a series by retired Rye City Court Judge Joe Latwin. Latwin retired from the court in December 2022 after thirteen years of service to the City.
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By Joe Latwin
We regulate competition. We have several antitrust laws. The primary antitrust law is the Sherman Act. It prohibits contracts, combinations and conspiracies that unreasonably restrain trade. This requires concerted – not unilateral – action. What is an unreasonable restraint of trade? Every contract restricts trade as there is a limit to how much a company can do or produce, so if it sells to A, it may not have enough goods to sell to B. The Courts have come up with a Rule of Reason to determine if the restraint is reasonable. However, certain activities that are deemed to be unreasonable restraints of trade without further proof; so called per se violations. These include agreements to fix prices, boycotts, division of markets, and cartelization.
There is a similar New York statute – the Donnelley Act -that prohibits those acts in intrastate commerce.
Section 2 of the Sherman Act prohibits acts monopolization of interstate commerce. No concerted action is required. To be a monopoly in violation of the Sherman Act you must control a relevant market such that you can unilaterally control pricing or access to the market. The first step is defining the relevant market. Economists are paid great sums to be expert witnesses to tell the courts what the relevant market is. The classic examples of defining a market are the entertainment industry and breakfast cereal market. Does the market for entertainment include movies, television, records, theatrical plays, music, and the list goes on? Does the market for corn flakes include all dry cereals, or other breakfast products? Once you define the relevant market, you can figure out how much of that market is controlled. Then you need to show an act of monopolization of that market. Did you just have a better product, or did you buy out your competition so they couldn’t compete? Did you have a strategically located or unique asset that eliminated competition? The classic example is the ownership of a key location – such as having the only railway yard at the crossing of the Mississippi River that effectively prohibited other railroad lines from going West. Perhaps a company holds a patent issued by the federal government that gives the patent holder the right to prevent others from employing the patented process or product. It’s tough to compete in the male enhancement market when you are prohibited from selling Viagra (before generics were permitted).
The Clayton Act prohibits leveraging of market power to exclude competition. The primary prohibition is against tying. You cannot condition a sale or lease of a product upon the purchase or condition that another product. If you want to buy my duplicating machine, you must buy my ink. A classic example of tying was in the movie industry, where if you wanted to book Casablanca for a tv station, you had to book a Nancy Drew movie too.
The Clayton Act also prohibits certain mergers that substantially lessen competition or tend to create a monopoly.
The Robinson-Patman Act prohibits price discrimination. This is not where caped crusaders (it’s Patman, not Batman) from the Justice Department roam Gotham City to fight antitrust violators. Price discrimination prohibits a seller from charging different prices to different buyers for the same product where the effect is to injure or destroy competition.
Lastly, the Federal Trade Commission Act bars unfair methods of competition that include all the matters covered by the Sherman and Clayton Acts.
When I was an Assistant Attorney General in the Attorney General’s Antitrust Bureau, it was shocking how blatant some of the violations were. We used to joke that the conspirators booked the Conspiracy Suite at the LaGuardia Hotel to meet and fix the prices of their goods and then were dumb enough to record their agreement. Of course, one of the members were disfavored by the agreement and tipped us off anonymously leading to the collapse of the cartel. But most of the time, we had to go out and discover the conspiracy through hard leg work and thorough investigations, with grand jury subpoenas and depositions.
