An Antitrust Primer for Trade Association Counsel
The antitrust laws have been described as the “Magna Carta of free enterprise.”1 They are designed to protect competition, which yields better quality, selection, and price. Generally, the antitrust laws apply to nonprofit trade associations just the same as they do to for-profit firms.2
The antitrust laws are a patchwork of state and federal statutes and decisions centered around the Sherman Act of 1890, as amended by the Clayton Act,3 the Robinson-Patman Act,4 and other laws. Section 1 of the Sherman Act prohibits contracts, combinations, and conspiracies in restraint of trade.5 Cartel activities such as price fixing, bid rigging, and divisions of markets by competing firms are examples of §1 violations. Section 2 prohibits monopolization, attempted monopolization, and conspiracy to monopolize.6 the Parker Brothers Monopoly board game teaches aspiring monopolists the concept of building and maintaining monopolies so they can collect higher “monopoly rents.” Such conduct in the real world is what §2 generally prohibits. Sections 7 and 7A of the Clayton Act are the main provisions under which antitrust enforcers review (and sometimes seek to block) proposed mergers and acquisitions.
The Florida Antitrust Act of 19807 includes provisions that parallel §§1 and 2 of the Sherman Act.8 Those provisions are to be construed in a manner consistent with federal decisions interpreting corresponding provisions of federal law.9 Conduct that is unlawful under the antitrust laws may also be unlawful under the Florida Deceptive and Unfair Trade Practices Act10 and the Federal Trade Commission Act.11
Elements of a §1 Violation
Generally, “[c]ompetitors are permitted by the antitrust laws. . . to engage in cooperative behavior, under trade association auspices or otherwise, provided they don’t reduce competition among themselves. . . or help their suppliers or customers to reduce competition.”12
Most antitrust actions against trade associations and their members are brought under §1 of the Sherman Act. The elements of a §1 violation are 1) “a contract, combination, or conspiracy which constitutes 2) an ‘unreasonable’ restraint of trade having 3) an impact on interstate commerce.”13 A conspiracy is a “conscious commitment to a common scheme designed to achieve an unlawful objective,. . . or a meeting of minds in an unlawful arrangement.”14 Unilateral conduct cannot constitute a violation of §1; concerted action is required.15 Thus, generally, a buyer acting independently is free to switch suppliers, and a manufacturer acting independently is free to switch distributors, without regard to §1.16
Where the existence of an agreement (i.e., a “contract, combination. . . , or conspiracy”) is undisputed, the analysis centers mainly on the anticompetitive economic effects of the agreement.17 In many cases, however, the existence or not of an agreement is the central issue. An unlawful agreement can be formed without a writing and even without an exchange of words. “A knowing wink can mean more than words.”18 Circumstantial evidence (such as a course of dealing, any exchange of words, and economic data) tending to show a meeting of minds can be enough to raise an issue of fact for a jury on the existence of an agreement.
A trade association can be deemed a co-conspirator when it knowingly aids or acquiesces in a conspiracy.19 For example, an association can find itself a conspiracy defendant when, on behalf of some of its members, it has sought to have manufacturers quit supplying retailers that sell at a discount (“free riders”).20
“Per se” Violations
Some kinds of §1 violations can be proven without a showing of anticompetitive effects; such effects are presumed. These so-called “per se” violations21 include “horizontal” price fixing (i.e., agreements, among otherwise competing firms, “formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing” the prices at which they will buy or sell goods or services);22 horizontal market-allocation agreements (i.e., agreements among competitors to divide geographic markets, services offered, or customers served);23 vertical agreements fixing minimum prices at which goods may be resold (“vertical price fixing,” a kind of “resale price maintenance”);24 group boycotts (concerted refusals to deal) “involving horizontal agreements among direct competitors”;25 and some kinds of tying arrangements.26
The Rule of Reason
The lawfulness under §1 of conduct that is not manifestly anticompetitive is tested under the “rule of reason.”27 As every agreement concerning trade restrains trade to some extent, the courts have long construed the language of §1 as prohibiting only those agreements that have resulted or are likely to result in unreasonable restraints of trade.28 The test is whether, under the facts and circumstances, an agreement’s actual or likely anticompetitive economic effects in a “relevant market”29 outweigh its actual or likely procompetitive effects in that market.
The first step in a rule of reason analysis consists of defining the relevant market the agreement likely will (or does) affect.30 The second step is a determination of whether the competitors involved collectively have “market power” which, to a seller, is the “ability profitably to maintain prices above competitive levels for a significant period of time.”31 If the combined firms do not have market power, the agreement lacks “the potential for genuine adverse effects on competition” in the relevant market and accordingly is not proscribed.32 The third step is a weighing of procompetitive justifications and effects against predicted (or known) anticompetitive effects toward a determination of whether, on balance, the agreement likely will have (or has had) a “substantially adverse”33 effect upon competition in the relevant market. The last step is an inquiry into whether the agreement is “reasonably necessary to the accomplishment of the legitimate goals and narrowly tailored to that end.”34 Under some circumstances, courts apply an abbreviated (“quick-look”) rule of reason analysis.35
Exemptions
There are many statutory and judicially created exemptions from antitrust liability. One of the most important of these to trade associations is the “Noerr-Pennington doctrine,”36 which “protects businesses and other associations when they join to petition legislative bodies, administrative agencies, or courts for actions having anticompetitive consequences.”37 Another is the “intra-enterprise immunity doctrine,” also known as the “Copperweld doctrine,” which holds that a firm is incapable of conspiring with its subsidiaries or employees.38 The “labor” exemption,39 the “state action doctrine,”40 and the statutory exemption for the “business of insurance”41 generally do not offer protection to trade associations.
Enforcement
The antitrust laws are enforced by state attorneys general,42 the Antitrust Division of the U.S. Department of Justice, the Federal Trade Commission, and “private attorneys general.” Violations of the Sherman Act and the Florida Antitrust Act can be investigated and prosecuted in civil or criminal proceedings. State and federal government enforcers often work together, investigating suspected violations through informal interviews and requests for documents and data, as well as compulsory process seeking documents, data, and testimony from the firms under investigation and third parties.43
Prevailing plaintiffs in civil antitrust actions brought by state attorneys general and private parties are entitled to fees, costs, and threefold their actual damages.44 Equitable relief, including injunctions, also is available. Government enforcers can seek imprisonment, criminal fines, and civil penalties. They also have considerable prosecutorial discretion. The Department of Justice even has an amnesty program (discussed below). Potentially large jury verdicts and fee awards attract private attorneys to commence “tag-along” class-action multidistrict litigation whenever they get wind of a government antitrust complaint (or even an investigation).
For these reasons, it is wise for a trade association that becomes aware of a potential problem or is contacted by an antitrust enforcement agency to immediately seek counsel from an attorney who is experienced in dealing with government antitrust and trade regulation enforcement agencies.
Trade associations that have reason to suspect the antitrust laws are being violated by other persons, or that a proposed merger or acquisition may be anticompetitive, may contact government enforcers to provide information and request action. Doing so without the assistance of antitrust counsel, however, may be unwise and less than effective in persuading the agencies to allocate limited resources to the enforcement effort sought. Under some circumstances, trade associations have standing to maintain their own enforcement actions in court through private attorneys.45
Antitrust Compliance
Every trade association should have an antitrust compliance program. The law’s boundaries are often gray and easily crossed; the consequences of a proven violation are severe. No litigation is more complex, drawn out, or expensive than antitrust litigation. Even responding to a government investigation can be more risky and expensive when an association has failed to implement an effective antitrust compliance program. Additionally, such a program potentially offers reductions in culpability scores under the federal sentencing guidelines and amnesty under the Antitrust Division’s Corporate Leniency Policy.46
An antitrust compliance program should begin with a policy stating the association’s commitment to compliance and its expectation that its members do the same. The policy should explain, in simple terms, what the law prohibits. Explanations and illustrations of what the terms “agreement” and “conspiracy” mean in antitrust parlance, together with a list of key “dos and don’ts,” should be included. Because improvidently chosen words can place an anticompetitive “spin” on legitimate business activities, guidance on business language usage might also be included. The policy should require that agendas, resolutions, and convention handouts be reviewed by counsel, in advance. (This review should be made with an eye toward how a government investigator or a juror might react.) The policy should identify the person to whom questions and potential issues concerning antitrust should be addressed. Finally, the policy should be adopted by corporate resolution, communicated to and periodically revisited with all association staff and members, and regularly reviewed and updated by counsel. The program of which the policy is a part should include a separate records retention policy (made applicable to electronic mail), which should be implemented and carefully followed. The program might also contemplate application for formal review of proposed association activities by the Department of Justice, the FTC, and, with respect to health care, the Florida Attorney General’s Office.47 Last, but not least, a particular individual or office should be assigned responsibility for ensuring that the compliance program is effectively carried out.
A Few Dos and Don’ts
Here are a few things trade association counsel, executives, and members generally should and should not do: DO encourage the trade association to help expand the markets within which its members compete; DO encourage the association to promote vigorous competition on quality, selection, and price within those markets; DO use the association to lobby government bodies on issues affecting the members’ industry; DO make sure the association maintains an effective antitrust compliance program; DON’T let the association be used as a forum for discussion of members’ price-related terms of sale, geographic areas or customers to be served, or the kinds of goods or services to be offered; DON’T let the association adopt rules governing price-related terms under which members sell goods or services; DON’T let the association be used as a conduit for anticompetitive exchanges of information, such as current pricing to particular customers or planned price increases; DON’T let the association be used to facilitate an agreement among competitors to refuse to deal with any third person; and DON’T let the association respond to a government antitrust agency’s information request without consultation with antitrust counsel.
1 United States v. Topco Associates, Inc., 405 U.S. 596, 610 (1972).
2 See Virginia Vermiculite, Ltd. v. W.R. Grace & Co.–Conn., 156 F. 3d 535, 540 (4th Cir. 1998) (citing cases); F.T.C. v. University Health, Inc., 938 F.2d 1206, 1214 (11th Cir. 1991) (“section 7 of the Clayton Act applies to asset acquisitions by nonprofit hospitals”).
3 Clayton Act, 15 U.S.C. §§12–27; 29 U.S.C. §52. Section 7 of the Clayton Act (15 U.S.C. §18) prohibits any merger or acquisition the effect of which “may be to substantially lessen competition” in a relevant market. Section 7 is “primarily a prophylactic measure intended to stop anticompetitive corporate mergers and acquisitions before those events could cause harm.” United States v. E.I. DuPont de Nemours & Co., 353 U.S. 586, 597 (1957).
4 The Robinson-Patman Act prohibits, among other things, price discrimination (15 U.S.C. §13(a)) and commercial bribery (15 U.S.C. §13(c)) in connection with the purchase and sale of goods under certain circumstances. Sections 2(d) and (e) of the Clayton Act, as amended, forbid indirect price discrimination in the form of promotional payments or allowances. See generally Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993). See also Iams Co. v. Falduti, 974 F. Supp. 1263, 1270 (E.D. Mo. 1997) (the elements of a price discrimination action are “(1) two or more sales (2) reasonably close in time (3) of commodities (4) of like grade or quality (5) with a difference in price (6) by the same seller (7) to two or more different purchasers (8) for use within the United States (9) which may result in competitive injury. A plaintiff seeking damages must also meet the actual injury requirement in 15 U.S.C. §15”). See also Fla. Stat. §540.01 (2000) (prohibiting price discrimination “for the purpose of destroying the business of a competitor in any locality”). In this article, all citations to the Florida Statutes refer to the Florida Statutes (2000).
5 Section 1 provides: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. §1.
6 Section 2 provides: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states, or with foreign nations, shall be deemed guilty of a felony. …” 15 U.S.C. §2.
7 Fla. Stat. ch. 542.
8 See Fla. Stat. §542.18 (“Every contract, combination, or conspiracy in restraint of trade or commerce in this state is unlawful”); id. §542.19 (“It is unlawful for any person to monopolize, attempt to monopolize, or combine or conspire with any other person or persons to monopolize any part of trade or commerce in this state”).
9 Fla. Stat. §542.32.
10 Mack v. Bristol-Myers Squibb Co., 673 So. 2d 100, 104 (Fla. 1st D.C.A. 1996) (“the acts proscribed by subsection 501.204(1) include antitrust violations”), review dismissed, 689 So. 2d 1068 (Fla. 1997). The FDUTPA is codified at Fla. Stat. ch. 541, part II.
11 See FTC v. Indiana Fed’n of Dentists, 476 U.S. 447, 454–55 (1986) (antitrust violations are unfair methods of competition under the FTC Act). The Federal Trade Commission Act, enacted in 1914, is codified at 15 U.S.C. §§41–58. The FTC Act provides in part: “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.” 15 U.S.C. §45(a).
12 In re Brand Name Prescription Drugs Antitrust Litigation, 186 F.3d 781, 784-85 (7th Cir. 1999) (Posner, C. J.), cert. denied sub nom. HJB, Inc. v. AmeriSource Corp., 120 S. Ct. 1220 (2000).
13 GTE New Media Servs., Inc. v. Ameritech Corp., 21 F. Supp. 2d 27, 42 (D.D.C. 1998). The Florida Antitrust Act also applies to intrastate commerce. See Fla. Stat. §542.31.
14 Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984) (citations and internal quotations omitted).
15 See, e.g., Fisher v. City of Berkeley, 475 U.S. 260, 266–67 (1986) (“Even where a single firm’s restraints directly affect prices and have the same economic effect as concerted action might have, there can be no liability under §1 in the absence of agreement”).
16 See Nynex Corp. v. Discon, Inc., 525 U.S. 128, 137 (1998) (“The freedom to switch suppliers lies close to the heart of the competitive process that the antitrust laws seek to encourage”); Monsanto, 465 U.S. at 761 (a “business. . . has a right to deal, or refuse to deal, with whomever it likes, as long as it does so independently”).
17 Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) (bar association’s rule prescribing minimum fees for legal services violated Section 1); National Soc’y of Prof’l. Eng’rs v. United States, 435 U.S. 679 (1978) (association’s canon of ethics prohibiting competitive bidding by its members violated §1).
18 Esco Corp. v. United States, 340 F.2d 1000, 1007 (9th Cir. 1965).
19 See Nanavati v. Burdette Tomlin Mem’l. Hosp., 857 F.2d 96, 119 (3d Cir. 1988) (“those who, with knowledge of the conspiracy, aid or assist in carrying out the purposes of the conspiracy make themselves parties thereto and are equally liable to or guilty with the original conspirators”) (citations and internal quotations omitted). See also United States v. Paramount Pictures, 334 U.S. 131, 161 (1948) (“acquiescence in an illegal scheme is as much a violation of the Sherman Act as the creation and promotion of one”).
20 See, e.g., Alvord-Polk, Inc. v. F. Schumacher & Co., 37 F.3d 996 (3d Cir. 1994) (involving efforts by trade association representatives to enlist manufacturers to stop supplying dealers who sold wallpaper at discounts through 1-800 telephone numbers). See also In re Disposable Contact Lens Antitrust Litig., 170 F.R.D. 524 (M.D. Fla. 1996) (complaint stated cause of action under §1 where it alleged that competing manufacturers of contact lenses unlawfully conspired among themselves and with two trade organizations for eye care practitioners to restrict the supply of replacement contact lenses to alternative channels of distribution).
21 See Arizona v. Maricopa County Med. Soc’y, 457 U.S. 332, 335–36 (1982) (holding that certain “agreements among competing physicians setting, by majority vote, the maximum fees that they may claim in full payment for health services provided to policyholders of specified insurance plans” constituted price fixing and were unlawful per se); Greenberg v. Mount Sinai Med. Ctr. of Greater Miami, Inc., 629 So. 2d 252, 258 n.1 (Fla. 3d D.C.A. 1993) (“A per se violation is one which requires no proof of anti-competitive effect”).
22 State Oil Co. v. Khan, 522 U.S. 3, 11 (1997) (citations and internal quotations omitted). “Vertical” price fixing, which can occur when an upstream seller (such as a manufacturer) dictates the price a downstream seller (such as a retailer) may charge, can also constitute a §1 violation. See, e.g., United States v. AnchorShade, Inc., 1996 WL 760285, at 5, 1996-2 Trade Cases (CCH) ¶71,640 (S.D. Fla. 1996) (final consent judgment).
23 See, e.g., Palmer v. BRG of Ga., Inc., 498 U.S. 46, 50 (1990) (agreement between two bar review course providers under which each agreed not to compete in the other’s territory was “unlawful on its face”); Oce Printing Sys. USA, Inc. v. Mailers Data Services, Inc., 760 So. 2d 1037, 1043 ( Fla. 2d D.C.A. 2000) (“When competitors at the same level of the market conspire to allocate territories in order to minimize competition, that action constitutes a horizontal restraint on trade which results in a per se violation of the antitrust statutes”).
24 See generally State Oil Co. v. Khan, 522 U.S. 3 (1997); id. at 22 (“vertical maximum price fixing. .. should be evaluated under the rule of reason”).
25 Nynex Corp. v. Discon, Inc., 525 U.S. 128, 135 (1998). See also FTC v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411, 428–31 (1990); Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co., 472 U.S. 284 (1985).
26 See generally Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451 (1992); MCA Television Ltd. v. Public Interest Corp., 171 F. 3d 1265 (11th Cir. 1999).
27 Levine v. Central Fla. Medical Affiliates, Inc., 72 F.3d 1538, 1546 (11th Cir. 1996) (“Agreements that do not fit within an established per se category are analyzed under the ‘rule of reason,’ i.e., courts will engage in a comprehensive analysis of the agreement’s purpose and effect to determine whether it unreasonably restrains competition”), cert. denied, 519 U.S. 820 (1996). See also F.T.C. v. Indiana Fed’n. of Dentists, 476 U.S. 447, 448 (1986) (a “conspiracy among dentists to refuse to submit X-rays to dental insurers for use in benefits determinations” constituted an unreasonable restraint of trade).
28 See Khan, 522 U.S. at 10.
29 A “relevant market” consists of a product market and a geographic market. “A relevant product market is a market composed of products that compete with each other: that is, products that are reasonably interchangeable from a buyer’s point of view.” Godix Equip. Export Corp. v. Caterpillar, Inc., 948 F. Supp. 1570, 1580 (S.D. Fla. 1996). A geographic market is the “area of effective competition. . . in which the seller operates, and to which the purchaser can practicably turn for supplies.” Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961).
30 Levine, 72 F.3d at 1551.
31 U.S. Dep’t of Justice & Federal Trade Comm’n, Merger Guidelines §0.1 (1992), 57 Fed. Reg. 41552 (Sept. 10, 1992), 4 Trade Reg. Rep. (CCH) ¶13,104. “The existence of [market] power ordinarily is inferred from the seller’s possession of a predominant share of the market.” Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 464 (1992).
32 Levine, 72 F.3d at 1551.
33 United States v. Arnold, Schwinn & Co., 388 U.S. 365, 375 (1967), overruled on other grounds, Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 57–58 (1977); Graphic Prods. Distribs., Inc. v. Itek Corp., 717 F.2d 1560, 1573 (11th Cir. 1983).
34 Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566, 1581 (11th Cir. 1991) (citation omitted), cert. denied sub nom. DeKalb Bd. of Realtors, Inc. v.
Thompson, 506 U.S. 903 (1992).
35 See California Dental Ass’n v. Federal Trade Comm’n, 526 U.S. 756 (1999).
36 See generally TEC Cogeneration Inc. v. Florida Power & Light Co., 76 F. 3d 1560, 1570 (11th Cir. 1996) (discussing doctrine).The name of the doctrine comes from two decisions, UMW v. Pennington, 381 U.S. 657 (1965) and Eastern R.R. Presidents Conf. v. Noerr Motor Freight, 365 U.S. 127 (1961). “Sham” petitioning of the government is not protected by the doctrine. See Amarel v. Conell, 102 F. 3d 1494, 1517–21 (9th Cir. 1996).
37 Wilk v. American Med. Ass’n, 895 F.2d 352, 357 (7th Cir. 1990), cert. denied, 498 U.S. 982 (1990).
38 “Under the intraenterprise immunity doctrine announced in Copperweld. . . , unilateral actions of a single enterprise do not constitute the type of concerted action proscribed by section one of the Sherman Act. Accordingly, an officer and an employee of the same company are legally incapable of conspiring with one another.” Crosby v. Hospital Auth. of Valdosta and Lowndes County, 93 F. 3d 1515, 1526 (11th Cir. 1996), cert. denied, 520 U.S. 1116 (1997). See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768–69 (1984).
39 See 15 U.S.C. §17 (antitrust laws are not applicable to labor organizations); Brown v. Pro Football, Inc., 518 U.S. 231, 235 (1996) (discussing judicially created labor exemption).
40 “Under the state action immunity doctrine, also known as the Parker doctrine, states are immune from federal antitrust law for their actions as sovereign.” Crosby, 93 F.3d at 1521–22 (citations and footnotes omitted).
41 McCarran-Ferguson Act, 15 U.S.C. §§1011–15. See generally Slagle v. ITT Hartford, 102 F. 3d 494 (11th Cir. 1996); Noack v. Blue Cross and Blue Shield of Fla., Inc., 742 So. 2d 433 (Fla. 1st D.C.A. 1999).
42 See Fla. Stat. §542.27 (Florida Attorney General’s enforcement authority); id. §542.28 (civil investigative demand). State attorneys general often jointly investigate suspected antitrust violations and bring civil actions in federal court for damages and injunctive relief.
43 Antitrust Civil Process Act, 15 U.S.C.A. §1311 et seq.; 15 U.S.C. §1312 (DOJ civil investigative demands); Federal Trade Commission Act, 15 U.S.C.A. §41 et seq.; Fla. Stat. §542.28 (civil investigative demand).
44 See 15 U.S.C. §15 (“any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States. . . and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee”); 15 U.S.C. §26; Fla. Stat. §542.22 (suits for damages).
45 See National Ass’n of College Bookstores, Inc. v. Cambridge Univ. Press, 990 F. Supp. 245 (S.D.N.Y. 1997) (association of college bookstores had standing to maintain Robinson-Patman action against publishers); Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566 (11th Cir. 1991) (association and broker had standing to litigate tying and group boycott claims).
46 See F.S.G. §8C2.5(f) (Effective Program to Prevent and Detect Violations of Law); id. §8C2.5(g) (Self-Reporting, Cooperation, and Acceptance of Responsibility). The Antitrust Division’s Corporate Leniency Policy is available at www.usdoj.gov/atr/public/guidelines/lencorp.html and is explained in the Antitrust Division Manual, ch. III(F)(9) (3d ed. 1998).
47 See 26 C.F.R. §50.6 (DOJ business review letters); 16 C.F.R. §1.1 (FTC advisory opinions); Fla. Stat. §408.18 (Attorney General no-action letters under Florida Health Care Community Antitrust Guidance Act).
Kimberly L. King is a partner in the Tallahassee office of Pennington, Moore, Wilkinson, Bell & Dunbar, P.A. He has practiced law in Florida since 1986, and served from 1996 to 2000 as an assistant attorney general, antitrust enforcement, in the Florida Attorney General’s Office.
