Antitrust Laws Designed to Foster Competition

When you hear the word “antitrust,” you may think of Microsoft or IBM — or, if you’re looking at historical cases, Standard Oil, American Tobacco and Ma Bell.  As a small or medium-size business, you might think antitrust law is an issue you don’t have to worry about.

Defining Antitrust Behavior     The difference between legal and illegal activity often depends on the circumstances. Here are a few FTC examples of when business practices are right or wrong:     Your company’s dealers all sell your product at the same price, without exception. Are the prices fixed?     Yes, if you make an item and have an accord with your dealers on a resale or minimum price.     No, if you have established a policy that your dealers shouldn’t sell below a minimum level and they independently agree to that policy.     Your firm and competing retailers agree to restrict shopping hours. Is it restraint of trade?     Yes, if the restrictions make it difficult for shoppers to make price comparisons.     No, if you keep hours that are convenient for consumers and allow them to comparison shop.     You manufacture a line of clothing and refuse to sell to a particular store. Is this illegal?     It could be, if you refuse to sell based on an agreement with competitors.     Not likely, if you select dealers for reasons such as a preference for those who carry a full line of your products, the desire to maintain a certain image for your product line, or the ability to maintain a minimum volume of business to minimize distribution costs.

Don’t fall into that trap. All businesses are subject to the same laws. What’s more, the forces of globalization and technology are driving small and large businesses into complex collaborations that can take careful negotiation to stay within the law.

Antitrust laws, administered by the Federal Trade Commission (FTC) and the Justice Department, are aimed at fostering competition. And they cast a long shadow over agreements that tend to inhibit competition, as well as sharing information about customers, pricing or discounts.

Among the kinds of practices to avoid:

• Price-setting agreements include price-related matters such as credit terms and discounts. However, price similarities or simultaneous price changes aren’t always illegal. They “also can result from normal economic conditions,” the FTC notes.
• Boycotts involve agreements with competitors not to deal with a specific party in order to force another party to pay higher prices or prevent a business from entering the market.
• Market division agreements among competitors can be illegal. They divide sales territories or allocate customers.
• Agreements to restrict prices in advertising can be illegal if they hold back important consumer information. Restrictions on non-price advertising can be illegal if the restrictions have anticompetitive effects and lack reasonable business justification.
• A professional code of ethics may be unlawful if it unreasonably restricts the way professionals compete.

Agreements aren’t the FTC’s only concern. You might think your company is unlikely to be subject to charges of monopolistic behavior, but even small firms can dominate a market illegally if the product is unique and the market is small. It is not necessarily illegal for a company to have a monopoly or try to achieve one. The law is only violated if the company uses “unreasonable methods.”

Another issue: If you are planning to merge, acquire a company or buy the assets of an ongoing business, the deal needs to be carefully structured to avoid government intervention.

Antitrust protection is a complicated science. (See the right-hand box above for examples.) Consult with your attorney to ensure your company complies with federal and state laws.