An Overview of Antitrust Law (By William Markham, 2000 and updated in 2010)

Antitrust law is the law of competition, and it is perhaps the least understood law of all. This article provides an overview and explanation of the essential principles of antitrust law, along with comments on certain recurring themes and recent developments in the voluminous case law by which the courts have struggled to give meaning and practical effect to the principal antitrust statutes.

What Is Antitrust Law? Broadly speaking, antitrust laws seek to promote fair competition on the merits and to protect consumers and wronged competitor businesses from anti-competitive business practices — practices undertaken in effort to undermine competitive commercial behavior in a given market or line of commerce.

The antitrust laws therefore forbid the wrongful acquisition or preservation of monopoly power, the abuse of monopoly power in order to establish a new monopoly, and concerted restraints of trade (i.e., business practices undertaken by two or more firms that improperly stifle or suppress “competition on the merits” in a given market). They also govern proposed mergers and acquisitions that are sufficiently large to constitute a threat to competition, and they address commercial practices that pose an arguable danger to competition on the merits in a properly defined antitrust market.

The Principal Antitrust Offenses. Antitrust law is the law of competition. It is concerned with wrongs committed against competition on the merits in a given line of commerce or market. It is never enough for a plaintiff to allege that it has been harmed by an unscrupulous defendant. Rather, an antitrust plaintiff must show that the defendant or defendants have undermined competition in a distinct market, and that this injury to competition in general has specifically harmed the plaintiff in particular. Thus a plaintiff in an antitrust case must make a showing of “antitrust harm” with ensuing “antitrust injury” to the plaintiff itself.

Allow me the following example to illustrate the point more vividly. If I own a restaurant in San Diego, and if I maliciously set fire to two other restaurants because I resent their flourishing success, I have clearly broken the law: I can be prosecuted criminally for arson and sued by the wronged, destroyed restaurants for intentional malfeasance, tortious interference, and very likely other civil wrongs. But my act, however evil, causes no harm to the thriving restaurant scene in San Diego. I have done nothing that even remotely upsets “competition on the merits” for restaurant dining in San Diego.

But suppose that my restaurant and the two other restaurants are all located on a remote island in the far away Pacific. If I burn them to the ground, then my restaurant alone will be the one restaurant remaining for the residents of this otherwise idyllic island. Suppose that I start charging them $50 for a plate of eggs and potatoes, quipping that “if they don’t like my service, they can eat at some other restaurant — oh, I forgot, there are no other restaurants!” My act of arson, if done under such circumstances, has likely caused harm to competition on the merits for restaurant services on this island.

Let’s suppose further that this remote Pacific Island is a territory of the United States and is therefore subject to U.S. antitrust law. When I am sued for redress under these laws, my clever antitrust attorneys will argue that, whatever else I might have done, I have not harmed competition on the merits because if I try to raise my prices for my restaurant services, others will soon establish competing restaurants to sell to customers who are disenchanted with my prices. This is the stuff of antitrust law, not mere arson and malicious misconduct. In this case, I would likely lose and be forced to pay three times the value of the harm that my misconduct has caused to competitors and customers alike, assuming the customers started a class action and my two ruined competitors also brought their own suit for lost profits. This is because a successful plaintiff in an antitrust case is entitled to treble damages and attorney’s fees and often can also obtain injunctive relief.

Suppose that I set the fire in San Diego, but I have done so because my restaurant and the two others are the only ones in the area that serve a rare delicacy cuisine known to its aficionados as “Fuji-style cooking.” In such a case my erstwhile competitors might sue me under the antitrust laws for causing antirust harm in the market for “Fuji-style cooking in the San Diego region.”

In other words, antitrust law is the law of competition, and it exists to protect against harm done to an entire market, not harm done merely to a particular business or consumer.

The antitrust laws are set forth in various federal statutes, most notably the Sherman Act and the Clayton Act. There are also copycat statutes in virtually every state.  The federal statutes use conspicuously general language to proscribe “monopolization” and “restraints of trade,” leaving to the courts the task of articulating what is meant by these terms. The California antitrust statutes in effect adopted the federal prohibition of restraints of trade, but do not prohibit monopolization, and in recent years the federal courts and the California courts have diverged in their analysis of trade restraints.

The two principal antitrust offenses are “monopolization” and “conspiracy to restrain trade.” There is a third signal antirust offense, “abuse of dominant position,” which is not expressly forbidden under the U.S. laws, but which is proscribed by the competition laws of other jurisdictions, most notably the European Union and Canada. In the U.S., a plaintiff can assail this kind of offense by claiming misuse of existing monopoly power to establish a new monopoly (monopolization) or in an attempt to do so (attempted monopolization).

Monopolization. Monopoly power means the power held by a single firm to raise prices, offer inferior products or impose other onerous terms on its customers for an extended period without fear of losing business to a rival firm that can offer better prices, products or terms. It is thus the power to restrict “output” (the quantity or quality of products sold) and is sometimes characterized by the courts as “the power to control prices or exclude competition.” Practically speaking, a firm has monopoly power if a substantial number of the customers who purchase the kind of products it sells must purchase these products from it and cannot turn to a rival firm in order to make the purchase, owing to high barriers to expansion and entry (i.e., existing rivals cannot readily increase their own production in response to the monopoly firm’s raising of its prices or imposition of onerous terms, and in addition new firms cannot readily enter the market in order to do so).

Not every instance of monopoly power is unlawful. Some firms acquire it by superior skill or from fortuitous circumstance. The offense of monopolization specifically condemns only the wrongful “acquisition” or “maintenance” of monopoly power: A firm commits the offense and becomes liable under Section 2 of the Sherman Act if it obtains or preserves monopoly power by means of anticompetitive practices. To prove the offense, a plaintiff must show that (1) the defendant wields monopoly power, and (2) the defendant used anticompetitive practices in order to acquire or maintain this power.

There are various standards and tests used to decide these issues. The common feature of all anticompetitive practices is that they hinder or ruin the commercial opportunities of the defendant’s rivals more than they improve its own offerings. The best and simplest test to evaluate whether a challenged practice is anticompetitive is to determine whether the defendant has employed it to improve its own offerings or to sabotage or undermine its rivals, but there are all manner of doctrines and theories on this essential, often elusive point. Broadly stated, a firm commits unlawful monopolization if it employs commercial practices whose calculated purpose and effect are to destroy its rivals’ opportunities, so that it alone can acquire or preserve monopoly power over a certain line of goods or services for which there is no readily available substitute (e.g., the market for food wrapping, but not the market for either cellophane wrapping or tin foil, since either kind of wrapping is a readily available substitute for the other).

To prove monopolization, it is usually necessary to prove the “relevant product and geographic market” in which the monopolization is alleged to have occurred. A claimant seeking relief for alleged monopolization must therefore establish the proper “definition” of the relevant market, and then demonstrate that (1) the alleged monopolist indeed possesses monopoly power in this market; (2) the monopolist acquired or preserved its monopoly position by employing exclusionary or anti-competitive practices that excluded its rivals from the market; and (3) the claimant suffered proximate losses in direct consequence of the anticompetitive exclusion. A claimant can be a wrongly excluded competitor, a suffering customer, or a class representative of suffering customers (i.e., customers who have been obliged to submit to higher prices or other commercial disadvantages).

It is likewise an offense for two or more independent firms to conspire together so that one firm can acquire or maintain monopoly power. This offense is called “conspiracy to monopolize.” It is also an offense when a firm employs anticompetitive practices with the specific intent of acquiring monopoly power, but only if there is a dangerous probability that it will succeed in the effort. These offense is called “attemped monopolization.”

The monopolization offenses are set forth in Section 2 of the Sherman Act and in the many cases that have interpreted this statute.

Conspiracies to Restrain Trade. In addition, it is unlawful for two or more independent firms to act in concert to “restrain trade” in a given line of commerce.  Certain kinds of trade restraints are deemed per se violations.  Others are condemned after an abbreviated inquiry or a “quick look” at the challenged practice. Still others are condemned, if ever, only after a laborious examination of the challenged conduct in accordance with the so-called “Rule of Reason.”

To prove a per se violation of Section 1 of the Sherman Act, it is not necessary to prove the relevant market or any anticompetitive consequence caused by the challenged conduct. It is sufficient to prove that the challenged conduct occurred, and its anticompetitive effect is then conclusively presumed. Even so, a private plaintiff must show that it suffered losses because of an anticompetitive (or competition-suppressing) aspect of the per se violation. The per se offenses in the modern era are limited to horizontal price-fixing (but not vertical price restraints such as resale price maintenance), bid-rigging, and horizontal market allocation.

In addition, the courts use abbreviated reviews in order to condemn certain kinds of tying arrangements and group boycotts. Broadly speaking, an unlawful tying arrangement is one by which a firm that has market power in one product market sells the product in question to its customers only on condition that they also purchase a second, separate product from it (there are many ways by which firms attempt this practice). A group boycott occurs when two or more direct competitors, possibly acting in connivance with their own supplier or customer, withhold necessary “resources” from one or more targeted businesses, which in consequence cannot become or remain viable competitors in a given line of commerce; the withheld “resources” are typically certain kinds of supplies, or the use of a facility, or access to a market, and the boycotting firms are typically dominant firms that jointly can exercise control over such a resource. Unlike the true per se offenses, business justifications can be invoked to avoid liability for unlawful tying or a group boycott, but both practices are highly suspect.

Other kinds of commercial practices are not deemed per se restraints of trade, but appear on their face to be so clearly anti-competitive in nature and likely effect that the courts will condemn them as unlawful trade restraints after a “quick look” at them.

Other practices are deemed impermissible trade restraints only upon being shown to violate the Rule of Reason: A claimant in a rule-of-reason case must show that two or more firms have acted in concert to impose trading practices that demonstrably harm competition on the merits in the relevant market, thereby causing specific harm to the claimant. The courts have elaborated a standard of proof that requires the claimant to make certain showings, which, if made, then oblige the defendants to proffer pro-competitive justifications for their challenged practices. The claimant can still prevail afterwards by establishing that the pro-competitive purposes could have been reasonably accomplished by less restrictive measures, or that these pro-competitive justifications serve as mere pretexts for anti-competitive practices.

Of note, a plaintiff can sometimes show that a trade restraint occurs when the defendant obliges the plaintiff to submit to a commercial arrangement that by itself or along with other such arrangements has the effect of harming competitive processes in a properly defined relevant market.

To prove a “rule of reason” offense, it is typically necessary to establish the “relevant product and geographic market” in which two or more firms have formed a “contract, combination or conspiracy” in order to restrain trade. The conspiracy need merely be a tacit understanding. Broadly speaking, a restraint of trade is a predatory commercial practice undertaken by co-conspirators that impedes competitors, suppliers, customers or other market participants from engaging in rational, pro-competitive conduct.  The usual result of such practices is to afford the conspirators increased sales at the expense of competitors or to allow them to make sales on terms and conditions that the customers would not accept or prefer in a freely competitive market.

The typical result is that customers are constrained to purchase goods or services on terms that they would not accept if the conspirators had not undermined competition on the merits for their business. Often, the undesirable result is that consumers must pay higher prices or accept inferior service from less responsive, complacent suppliers who have succeeded at suppressing nascent threats to their manner of doing business. The range of commercial practices that can constitute an unlawful restraint of trade are very broad, but it can be difficult and expensive for a claimant to prove restraints of trade under the Rule of Reason.

Defendants in Section 1 cases sometimes proclaim the lofty pro-competitive purposes of their challenged practices, but a closer inspection sometimes reveals that their supposed pro-competitive aims are neither promoted by the practices in question nor even related to them in any meaningful way.

The offense of conspiracy to restrain trade is set forth in Section 1 of the Sherman Act and in the voluminous case law that interprets this statute. California’s Cartwright Act likewise prohibits trade restraints undertaken by two or more independent entities so long as the conduct in question exerts a substantial effect on businesses or consumers in California.  The California courts historically have adopted federal case law interpretations of Section 1 in order to decide claims brought under the Cartwright Act, but the California courts have declined to adopt certain federal doctrines in the modern era that have significantly limited the reach of federal antitrust laws, such as the modern federal doctrine on vertical price-fixing (resale price maintenance) and the modern federal doctrine on predatory pricing.

To summarize, it might be said that an antitrust offense is a tort committed against a market rather than against a particular business or person in the market. The classic antitrust offenses are (1) the acquisition of monopoly power by improper means, (2) the preservation or enlargement of monopoly power by improper means, (3) the abuse of monopoly power in one market to obtain monopoly power in another market, and (4) conduct coordinated by two or more companies that sabotage “competition on the merits” in a given market — i.e., unlawful restraints of trade.

A monopoly is not necessarily evil, nor does its mere existence violate the antitrust laws. Monopolies are deemed necessary or even useful in some markets: For example, it was thought until recently that electrical power could be best furnished by local monopolies, none of whom ever competed against the others (this circumstance finally might change because of recent developments in the relevant technologies). Nevertheless, it is always a violation of antitrust law to use anti-competitive or predatory practices to acquire monopoly power in a particular market, or to use such methods to preserve or enlarge monopoly power, or to abuse monopoly power in one market in effort to obtain a monopoly in another market. It is likewise a violation of antitrust law for two or more firms to act together in order to sabotage competition on the merits or engage in any of the per se offenses. These practices — monopolization and trade restraints — constitute the bread and butter of antitrust law.

Mergers and Acquisitions. Moreover, two firms can combine their operations by merger or asset acquisition only if their combination does not undermine competitive processes or result in a monopoly in one or more properly defined antitrust markets. If one or both firms are sufficiently large and/or their contemplated combination is sufficiently large, then they must obtain regulatory approval before undertaking the combination. This is a requirement of the Hart-Scott-Rodino Act and the guidelines that govern its enforcement. To do so, the firms must give notice of their proposed combination to the Federal Trade Commission (“FTC”) and to the Antitrust Division of the United States Department of Justice (“DOJ-Antitrust”). Either agency might then require further information and thereafter refuse to give approval or give approval only on condition that one or both firms divest assets or business operations.

Some combinations do not require advance approval, but might later be challenged in court by the FTC or DOJ-Antitrust, which might challenge a combination post-facto on the ground that it has conferred excessive market power on the combined operation or has otherwise diminished competition, even if the size of the companies or their transaction did not require approval in advance under the Hart-Scott-Rodino Act.

It is never possible to analyze a proposed merger or acquisition without defining the proper market for antitrust purposes and analyzing how this market will operate after the proposed merger or acquisition takes place. Thus the DOJ-Antitrust has issued extensive guidelines that explain how antitrust markets should be defined for the purpose of analyzing a proposed merger or acquisition. These guidelines explain how the DOJ-Antitrust analyzes proposed horizontal and non-horizontal mergers and acquisitions.

The FTC and/or DOJ-Antitrust can challenge a merger or asset acquistion under Section 7 of the Clayton Act on the ground that it poses an “incipient” threat to competition in a properly defined relevant market. Subject to various restrictions, a private litigant can also bring such a challenge.

The Antitrust Statutes. The antitrust laws are set forth in various federal and state statutes. The federal statutes address interstate commerce, while the state ones address intrastate commerce within the state. Owing to a very expansive interpretation of the term “interstate commerce,” virtually any significant commercial transaction can be said to affect “interstate commerce” and therefore be deemed subject to federal antitrust regulation. Even so, some practitioners prefer for various reasons to plead their antitrust claims in state court, even when so doing means overlooking significant aspects of the case.

The state statutes and case law incorporate the federal standards, so that in most instances it is not possible to litigate an antitrust case in state court without having a thorough grasp of federal antitrust law. Notably, California antitrust law incorporates and expands upon Section 1 of the Sherman Act as well as the offenses of predatory pricing and unlawful price discrimination, but it does not address the monopolization offenses.

Here is a brief summary of the principal federal statutes, followed by general comments on the state statutes, nearly all of which are expressly modeled after the Sherman Act:

  • The Sherman Act. This statute is the premier article of federal law. It is the original, principal, and foremost antitrust statute in the United States, setting forth the broad statutory proscriptions that act as a “charter of the marketplace” and “constitution of competition law” in American jurisprudence. The Sherman Act codifies the principal antitrust offenses — conspiracies to restrain trade, monopolization, attempted monopolization, and conspiracies to monopolize. The Sherman Act is worded in broad, open-ended language, so that clever competitors cannot elude its provisions by lawyerly evasions and obfuscation. Its detractors have argued that the statutory language is so broad and open-ended as to be almost meaningless, and that this circumstance has allowed the courts excessive discretion in interpreting and applying it, so that the antitrust law has become arbitrary and unpredictable. The rejoinder to this argument is that the Sherman Act sets forth the fundamental standards, and it is for the courts to decide in each case whether the challenged conduct constitutes monopolization of a line of commerce or the concerted imposition of an improper restraint of a line of commerce. A century of case law has helped to provide clarity and meaning to this statute, establishing how it is supposed to be applied in order to forbid and sanction illegal trade restraints and monopolization. Every antitrust lawyer must be familiar with this case law, especially the leading cases issued by the U.S. Supreme Court and in the local appellate circuit.
  • The Clayton Act. This law is another federal statute that imposes restrictions on proposed mergers and acquisitions. It also supplements the Sherman Act, prohibiting certain kinds of commercial practices that excessively stifle competition on the merits. It sets forth various civil remedies. Indeed, it was the Clayton Act that established a private right of redress for civil relief under the Sherman Act (at 15 U.S.C. § 15), awarding treble damages and attorney’s fees to a private plaintiff who prevails on a claim made under the antitrust laws of the United States. In addition, the Clayton Act usefully allows the courts to enjoin anti-competitive conduct before it actually causes harm.
  • The Robinson-Patman Act. This statute forbids sellers to make sales of the same or similar products at the same time to commercial customers at different prices, if the practices causes harm to competitive processes in the seller’s market, the buyers’ markets or in further downstream markets. This statute is highly technical and disfavored by the modern courts, which are disinclined to meddle in the prices that a seller unilaterally sets, but there are instances in which price discrimination remains actionable and can serve as a potent antitrust claim.
  • The Federal Trade Commission Act. This is another federal statute that established the Federal Trade Commission (“FTC”), which has regulatory authority to enforce the Sherman Act, the Clayton Act, and the Robinson-Patman Act. Significantly, Section 5 of the FTC Act confers additional authority on the FTC, allowing it to test the limits of antitrust policy. An aggrieved firm that concludes that it has no civil remedy under the Sherman Act or Clayton Act might decide that its best recourse is to complain to the FTC, asking that it invoke its authority under Section 5 of the FTC Act in order to investigate the matter and initiate administrative proceedings in order to enjoin the challenged conduct.
  • The Hart-Scott-Rodino Act. This federal statute imposes disclosure requirements for certain kinds of mergers, acquisitions, and other combinations of two or more business operations.  The duty to make a disclosure depends on the size of the transaction and the size of the participating companies. If a firm wishes to conduct a transaction that is covered by this Act, it must first make prescribed disclosures to the FTC and Department of Justice-Antitrust Division, either of which can thereafter require additional disclosures, object to the transaction, grant conditional approval (e.g., require a divestiture as a condition of approval of the proposed transaction), or decline to object and allow the proposed transaction to be consummated without further inquiry. It is sometimes possible to obtain expedited approval and a waiver of the obligatory waiting period. If the FTC or DOJ-Antitrust objects, the proponents of the merger can challenge the objection, abandon the transaction, or modify their proposal and re-submit it.
  • State Antitrust Statutes. In addition to the federal statutes, each state in the United States has its own antitrust statutes. These statutes, which govern intrastate commerce, typically incorporate the statutory proscriptions and case law interpretations of the Sherman Act, which remains the statute of reference and premier article of antitrust legislation in the United States.

The Courts and Antitrust Theory. Since the antitrust statutes are couched in general language (e.g., “it is an offense to conspire to restrain trade”), they have no practical meaning until the courts actually enforce them against the businesses accused of violating them. It is therefore impossible to understand antitrust law merely by reading the applicable statutes. It is necessary to know the cases as well as their underlying reasoning, and it is equally necessary to have a thorough grasp of antitrust theory (antitrust economics), which is elaborated and debated by economists and law professors across the country, and which is often referred to expressly in the cases.

Why Antitrust Law Matters. Antitrust law matters to consumers and businesses that have been harmed by anti-competitive abuses or have been accused of employing them. The underlying purpose of the antitrust laws is to promote robust competition in the markets and to prohibit anti-competitive monopolists, cartels, and conspiracies. To read more on this point, please see the following article at this link.

Antitrust Sanctions, Civil and Criminal. An antitrust offender sued in civil court risks paying treble damages (three times the value of proven harm caused by its offense), as well substantial attorney’s fees and costs. An antitrust defendant, even if it prevails, cannot recover its attorneys’ fees, unless the case was demonstrably frivolous. An antitrust offender might also be enjoined — i.e., ordered to curtail certain business practices during the lawsuit and perhaps permanently if the suspended practices are deemed at trial to be antitrust violations. Antitrust cases are usually very costly to the alleged offender even if it prevails, but under the new pleading standards a frivolous or poorly conceived case can be quickly terminated upon a well-stated motion to dismiss. Firms that are tempted to monopolize a market or collude with others in order to gain an insurmountable advantage over customers or rivals should well consider the perils of private antitrust enforcement before embarking on their venture. The very practices that might generate outsize profits today might later involve the participating firms in outsize antitrust litigation tomorrow.

Conversely, an antitrust plaintiff can recover treble damages, injunctive relief, and its attorney’s fees and costs of suit (but not experts’ fees). In some cases, antitrust plaintiffs can obtain very substantial judgments against solvent firms that must pay them.

In really egregious cases, which typically concern the well-established per se violations of Section 1 of the Sherman Act, the alleged offenders might be subjected to criminal prosecutions, and their officers and employees might be personally indicted, tried, and convicted. Criminal prosecutions of antitrust law are typically conducted by the Antitrust Division of the United States Department of Justice (“DOJ-Antitrust”), as well as by state prosecutors. The FTC, as noted above, has strong regulatory powers and can readily refer matters to the DOJ or act in concert with it. The DOJ-Antitrust sometimes collaborates with the United States Attorney’s Office, particularly in cases in which the charges include both antitrust offenses and alleged mail fraud, bank fraud, wire fraud and/or RICO violations. The DOJ-Antitrust prosecutes both criminal and civil claims, and the FTC prosecutes civil and administrative claims.

A corporation convicted of a criminal violation can be ordered to pay enormous restitution and fines, and an individual can be ordered to pay enormous restitution and fines as well as serve substantial terms in prison (up to ten years in a federal prison!). If a corporation is convicted of a criminal violation, it will usually be sued civilly by the civil victims of the offense. It is often sued merely upon news of an indictment or ongoing criminal investigation. Sometimes a convicted firm must try to wade through a ruinous succession of civil cases from competitors and customers. In many instances, a criminal conviction for antitrust violations foretells the demise of the company that receives it.

Criminal prosecutions principally concern price-fixing, bid-rigging, horizontal market allocations, and other brazen instances of antitrust wrongdoing. To prevail in a criminal prosecution, the government must prove each element of the alleged offense beyond a reasonable doubt and must prove that the defendant acted with the requisite “scienter” or criminal intent. The requirement of scienter was imposed by the US Supreme Court in a case whose reach has been significantly limited by appellate courts that have ruled that criminal intent in a prosecution for a per se offense merely means the intention to commit an act in furtherance of a common plan by which the per se violation was committed. Since most criminal violations concern per se offenses, the requirement of proving criminal intent has been entirely circumscribed by these cases, but the rationale for this limitation seems dubious (at least to the author of this article), and the issue will likely be revisited by the US Supreme Court at some point or other.

The Origins of Antitrust Law, Briefly Stated. Antitrust law makes more sense if you have some understanding of its origins. What, for example, does “antitrust” mean? As with everything else, it all makes much more sense if you understand the first principles.

Antitrust law is really the law of competition. The term “antitrust” merely refers to the enormous “trusts” set up in the U.S. in the late 1800s by the infamous “robber baron” magnates. These trusts directly and indirectly controlled entire markets for petroleum production and transport, steel production, banking, railroad transport, and various related industries and services. These trusts imposed a stranglehold on competition in the different markets in which they operated and threatened to undermine the charter principles of free-market economics. If unchecked, they would have resulted in a society living at the mercy of a handful of monopolies and oligopolies that completely dominated all the key sectors of the economy. By their immense concentration of monopoly power and market power, they would have been able to raise prices, restrict output, and exclude competitors with impunity. The “antitrust laws” were enacted to redress this evil and to establish the law of competition in the United States.

Defending competition on the merits is the true aim of antitrust law. If a competitor merely employs a “sharp practice” that is harmful to a rival or its customer, the antitrust laws offer no relief. Broadly speaking, the antitrust laws take effect only where (1) predatory competitors collude with one another in order to undermine “competition on the merits” by means of an actionable restraint of trade; or (2) one or more predatory competitors act to exclude or undermine other competitors in order to establish or preserve a monopoly position that one of them holds; or (3) a proposed merger, acquisition or exclusive supplier arrangement threatens to lessen competition unacceptably in a properly defined market. In each of these instances, the risk is that one or more predatory competitors or a newly enlarged firm can sell goods or services at higher prices without fear that their customers can seek relief by purchasing substitute goods or services from a rival. Protecting “competition on the merits” and stopping predatory abuses that cannot be redressed by ordinary competitive processes — these are the proper aims of antitrust law, though not always the result.

The antitrust laws aim to accomplish these purposes, and to this end they are worded in remarkably open-ended language, so as to anticipate the sophistication and cunning of the predatory firms, which, if given the tiniest loophole, would exploit it perfectly.

The Inescapable Injustice of Antitrust Law. The courts have tried for nearly a century to give meaning to the broad standards enunciated in the principal antitrust statutes, and not surprisingly they have often contradicted one another in their rulings: Some courts have been disposed to find antitrust violations in every corner, while others have refused to see it in even the most brazen instances of predatory exclusions and anti-competitive conspiracies. It sometimes seems as though the many decisions, if considered as a whole, appear to be an unwieldy, incoherent hodge-podge of ad hoc improvisations that hopelessly contradict one another, if not in specific outcomes then in their underlying reasoning.

If laws should be generally understood in advance by the population whom they are supposed to govern, then the antitrust laws have largely been a failure, since their meaning and practical effect become clear only after the courts develop specific applications of the broad standards given in the underlying statutes — which they do only when called upon by an aggrieved private litigant or a government prosecutor.

Thus one competitor might object to the business practices of its more successful rival. It then brings an antitrust suit, or complains about the matter to the DOJ. A civil antitrust case is brought, or, in some instances, a criminal proceeding is initiated. The court, having been thus summoned, now decides whether or not there has been an antitrust violation — and this it does by applying the general formulas of the statutes to the specific business practices under challenge. Whether or not the practice is improper becomes known only after the court has ruled. This is inevitably followed by appeals made by the losing party, and then by further appeal. The entire process can last for years.

This is a very curious brand of law, and one that appears to fail the first test of all laws: Is it generally understood to forbid certain conduct in advance of the fact, or is its application unpredictable, unknowable, seemingly arbitrary, and therefore disruptive?

Even so, firms that set out to destroy competition on the merits tend to be skillful, subtle, and infinitely more pernicious to society than mere ordinary tortfeasors. The antitrust laws offer meaningful redress, sufficient incentives to private litigants to enforce the laws of competition, and real deterrence to those firms that might otherwise be inclined to seek profits by crushing competitive conditions in the markets in which they operate. The antitrust laws must be stated in general terms, or else they would be successfully eluded. The evil of these laws is therefore a necessary one in this author’s opinion.

The Injustice Is Necessary. It is impossible to foresee every sort of business arrangement that might constitute an unfair practice that impedes the marketplace, and it is therefore impossible to enumerate the forbidden practices. Thus the antitrust laws limit themselves to the statement of general principles, and leave to the courts and regulatory authorities the difficult task of applying these principles to contested business practices. In effect, the antitrust statutes are a “constitution of the marketplace,” setting forth the broad principles of how markets should operate. The civil and criminal penalties, including the onerous burden of treble damages, seem necessary because they deter anti-competitive behavior, and also because they give strong incentive to victims to come forward to complain of antitrust misconduct, which never could be adequately policed by the DOJ, the FTC, or state prosecutors without the active cooperation of the aggrieved competitors or customers whom the offender has run out of business or gouged into paying monopoly prices.

Litigating An Antitrust Case. The devil truly does lie in the details, and it cannot be emphasized enough how important it is to pay close attention to every item of communication sent or received by the concerned parties. But none of this Spartan attention matters a whit, unless the person paying it has a well-formed theory of the case that he has set out to prove. In antitrust litigation, as in all other kinds of trial work, he who tells the better story wins the case. But the story will ring false, unless it is backed up by the facts, which can be culled only by a painstaking review of everything in sight and everything that is not in sight as well. You have to know what to ask for, whom to ask, what to look for once you have the requested materials, and how to organize it all.

Antitrust cases are won by perseverance, determination, unflagging attention to the trifles, and all of this in service to proving a larger theory of the case that will convince both judge and jury.

Article by William Markham, San Diego Attorney. © 2000 (updated in 2010).

Please also see the following: