Chapter 25 Antitrust Laws

Antitrust laws prohibit:

1. Price Fixing - Collusion between or among members of a particular trade to maintain prices at a set level. 2. Group Boycotts - Agreements between or among members of a particular trade that would prevent other members from fair participation in the trade's activities. 3. Market Allocation - Agreements between or among members of a trade to avoid doing business in specific market areas. 4. Tie-in Arrangements - Arrangements that requires a buyer to purchase additional or unrelated products or services when making a product purchase.

a violation of an antitrust law occurs when all three of these parameters apply

1. There is a monopoly, a contract, a conspiracy or a combination of such. 2. The existence of the monopoly or conspiracy creates a restraint of trade - which is a negative impact on an individual's or a company's ability to do business. 3. The restraint of trade unreasonably restricts competition and functions against the public interest.

Tie-In Arrangement

A tie-in arrangement - or tying agreement- is an arrangement that requires the buyer to agree to something in exchange for the sale.

Antitrust Laws

Antitrust laws are state and federal laws designed to maintain and preserve business competition. These laws are based on the belief that free enterprise and healthy competition are good for individual consumers as well as the economy.

History of Antitrust Laws

By the 19th century, the United States began to experience what came to be known as big businesses. In the age of industrialization, the railroad became the first real form of mass transportation. This meant that within one day's time people and businesses could move themselves and products over distances that previously were never manageable. Eventually, transportation competition began to rise and railroads turned to consolidation to help deal with decreasing profits. Consolidation continued as businesses faced increasing competition. With the intention of controlling prices, competing businesses coordinated prices in order to minimize competition and increase profit. In essence, it was a form of monopolization, as companies consolidated their operations in the market.

Price Fixing (in real estate)

Collusion between brokers and sales people with competing companies to set commission rates is illegal.

Commission conversations

In order to avoid the appearance of price fixing, brokers from different brokerages must never have a conversation about the commission rates they charge to clients. The only type of discussion about commission rates that is permitted would be the discussion of how the commission would be split between the listing broker and the selling broker in a cooperative transaction. Brokers may discuss commission rates with their affiliated licensees. They may also discuss commission rates with potential employees during an interview. Brokers run into problems when commission conversations take place with brokers or sales associates from other brokerage firms. The mandate to refrain from discussing commission rates applies not only to actual conversation but also to publication. In today's world, a real estate association would have big problems if it published recommended commission rates or even if it published a survey of the current commission rates among its members. For this reason, multiple listing services will publish the commission rates that are offered to cooperating brokers, but it will not publish the rates that the listing brokers are charging.

Group Boycotts

Licensees should never "get together" and boycott a company because of their business practices.

Market Allocation

Market allocation occurs when competing firms agree to split up an area and refrain from doing business in each other's territory. Market allocation does not just apply to geographic territories as illustrated above. They could also be about Price ranges Types of properties Sociological divisions of business Refusal to deal with a competitor

Antitrust Lawsuits

New legal precedents are set every time antitrust suits are heard in court. In 1980, the courts decided that the fixing of real estate commissions have interstate effects in that they can affect the demand for interstate financing and title insurance. Courts have also found that violations of antitrust laws occur when brokers: Charge net commissions Share commissions with brokers who have not provided any services in the sale or listing of a property Share commission with unlicensed companies As a result of these kinds of cases, many real estate boards do not directly or indirectly influence commission rates or get involved in commission arrangements between cooperating brokers. In addition, some states require licensees to inform clients that commission rates are negotiable.

Clayton Antitrust Act

The Clayton Antitrust Act of 1914 made both substantive and procedural modifications to federal antitrust law. The Clayton Act was designed to cover restraints on interstate trade or commerce that are not covered under the Sherman Act. This included preventing individuals from serving as directors at competing companies. Under the Clayton Act, private individuals are permitted to sue antitrust violators. If the suits are successful, the individuals can recover three times the damages incurred plus court costs and attorneys' fees.

Federal Trade Commission

The Federal Trade Commission (FTC) was formed through an act of Congress in 1914. The FTC has the power to judge whether particular trade practices are unfair. The FTC can enforce compliance with the Sherman Act and some sections of the Clayton Act.

The Sherman Antitrust Act

The Sherman Antitrust Act of 1890 is the principal federal statute that covers competition and is one of the most important pieces of antitrust legislation.

Penalties

The penalties for antitrust violations can be severe. Individual violators of the Sherman Act can be fined up to $350,000 and sentenced to up to 3 years in federal prison for each offense; corporations can be fined up to $10 million for each offense. Note: For the reasons mentioned above, the Sherman Act was not enforced for many years. Then Congress began to seek out violators and up the fines and prison terms. In June of 2004, President George W. Bush signed into law the Criminal Antitrust Penalty Enhancement and Reform Act, increasing the maximum criminal penalty for individuals to 10 years' imprisonment and a $1 million fine, and the maximum penalty for corporations to a $100 million fine.

John D. Rockefeller's Standard Oil in 1882

big business became an issue that the public needed to confront. Standard Oil merged with its competition by forming the Standard Oil Trust. This was basically the establishment of what is known now as a board of trustees. These trustees became legally responsible for all assets and properties of Standard Oil and the merged companies. The trustees were also responsible for appointing all directors and managers of the company, thus solidifying their control over Standard Oil and, fundamentally, the oil industry. Prices across the entire industry were essentially being directed by one entity. Any other company not a part of Standard Oil's trust was unable to compete against the giant company and was therefore unable to enter the industry. Standard Oil Trust could basically run out any rival business by setting a lower price that would be impossible for a single-entity company to operate on. By this time, the public was seeing limited competition and restrictive price controls in two industries: the railway industry and the oil industry. These two entities prompted public discontent, which in turn led to the desire and intent to control big business and monopolistic practices.