The entire body of law arose out of a need to stem and reverse some of the abuses of the “Robber Baron” era. In the late 1800s, it was common to have key commodities and the industries related to those products controlled by large corporate enterprises. These entities would band together into a form of common trust ownership. The trustee, in turn, was able to control the prices, territories of distribution, and the like of the product. For example, prior to the enactment of antitrust laws, industries like oil, cotton, sugar, and whiskey were all dominated by such trusts. Probably the best known of these trusts was Standard Oil. In 1890 the Standard Oil Trust controlled over 90 percent of the market for oil products in the U.S. By the time the trust was “busted” in 1911, over thirty companies were ordered separated from the parent firm. This sort of monopolization of the marketplace led to the landmark antitrust legislation in 1890, the Sherman Antitrust Act. The act has two main objectives:
(1) To prevent combinations in trust or otherwise, which act in restraint of trade, i.e., illegal joining together to restrain trade.
(2) To control markets thought to have a monopoly, i.e., illegal domination so strong as to ipso facto restrain trade.
These objectives are set out in Sections 1 and 2 of the Act. What is interesting about this Act is that Congress used very broad language to give the Justice Department maximum latitude in seeking enforcement of its provisions. The modern economic view says that large concentrations of economic power are not evil per se as long as they are efficient and are still fighting for a competitive position on a world-based economic playing field. Recent Supreme Court decisions have clearly favored this more lenient view as evidenced by the large number of mergers, acquisitions, leveraged buyouts, and consolidations that have taken place on Wall Street with government approval.
Under Federal Court rules of interpretation, two main classifications of offenses have evolved. The Per Se Rule is used to strike down restraints that courts deem to be so inherently anticompetitive that they cannot be allowed as a matter of law, regardless of any claimed justifications. On the other hand, the Rule of Reason has given courts latitude to accept restraints of trade on a case-by-case basis where legitimate concerns are overriding.
The Sherman Act sets the basic goals and objectives of keeping marketplaces open to competition. The Clayton Act and the Federal Trade Commission Act are designed to provide tools of implementation to those basic public policy objectives. As compared to the almost philosophical tenor of Sections 1 and 2 of the Sherman Act, the Clayton Act, and more particularly, the Robinson-Patman Amendment to it, speaks to much more specific objectives. The objectives arose out of discriminatory practices aimed at getting the little guy.
The 2000’s Microsoft case is a reflection of this modern view of antitrust. Every generation has its “poster child” antitrust company. Early in the 1900’s is was the Standard Oil Trust. In mid-century enforcers moved on to IBM and AT&T. Finally, Microsoft moved to center stage.
Microsoft was ultimately found guilty of monopolization. Section 2 of the Sherman Act prohibits the act of “monopolizing.” But notice that this is not a prohibition on monopolies. “Monopolies” that are won by superior skill, foresight and industry are not illegal. Monopolization requires a combination of monopoly with a purposeful act that causes injury to competition. The best example of this is how Microsoft drove Netscape from the browser market (and effectively eliminated a potential thread to its Windows monopoly) through predatory (below cost) pricing by giving away its browser with the operating system and exclusionary conduct (by sticking deals with PC manufacturers that gave favorable terms in exchange for using the Microsoft browser exclusively.
From a legal perspective, identify and define monopoly and unfair competition practices. Please describe three actions that a company needs to avoid in order to not violate the Sherman Act, the Clayton Act and the Federal Trade Commission Act. Provide examples of the three actions (either real from research or a hypothetical fact pattern).
