Chapter 17 Antitrust Misrepresentation

Which statement would constitute a violation of antitrust laws? a. "Two percent is actually the minimum amount that I can charge and keep my business running." b. "Our commission rate is three percent, but I am willing to write the listing agreement under the terms you are requesting and discuss it with my broker." c. "I have found that in order to adequately expose your property to the market I must charge three percent." d. "Yes, all brokers charge the same three percent to list and sell a property."

"Yes, all brokers charge the same three percent to list and sell a property." (d)

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.

Antitrust laws prohibit:

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

In general, a violation of an antitrust law occurs when all three of these parameters apply to a business activity:

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.

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.

All of the members of one board of REALTORS agree that they will not show the properties of the members of another board of REALTORS. What is this an example of? a. Price fixing b. Tie-in arrangement c. Group boycott d. Market allocation

Group boycott (c)

What is the rule of reason?

If the perceived restraint of trade activity is judged to be reasonable, it is allowable under the law.

What's the penalty for violating the Sherman Antitrust Act?

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. However, the Criminal Antitrust Penalty Enhancement and Reform Act of 2004 increased 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.

What three parameters when present in a business activity constitute an antitrust violation?

Monopoly, contract or conspiracy Restraint of trade Unreasonableness

Federal vs. State Jurisdiction

Most lawsuits that can be filed in federal district court can also be filed in state court. Federal courts have exclusive jurisdiction only in a very few kinds of federal question cases, such as lawsuits involving copyright violations, patent infringement, or federal tax claims. This means that plaintiffs in all diversity jurisdiction cases and nearly all federal question cases have a choice of suing in federal or state court. This includes suits involving antitrust violations.

Rule of Reason

One of the determining factors as to whether or not an action is a violation of antitrust law is a decision about the reasonableness of the activity. If the perceived restraint of trade is unreasonable, it can be deemed illegal. If, however, an activity is judged to be reasonable, it is allowable under the law.

Which term applies to the practice of two or more sellers agreeing that they will not sell below a certain price point? a. Price-adjusting b. Bid-rigging c. Price-fixing d. Price-holding

Price-fixing (c)

Which of these is not a violation of antitrust laws? a. Boycott b. Price fixing c. Redlining d. Market allocation

Redlining (c)

What do we call the unreasonable restriction of business activities that results from conspiracy among members of a trade? a. Market allocation b. Group boycott c. Restraint of trade d. Tie-in arrangement

Restraint of trade (c)

Which of the following is NOT a major federal antitrust law? a. The Sherman Antitrust Act b. The Burkhart Act c. The Federal Trade Commission Act d. The Clayton Act

The Burkhart Act (b)

Which of the following prohibits unfair methods of competition in interstate commerce? a. The Federal Trade Commission Act b. The Clayton Act c. The Sherman Antitrust Act d. The Antitrust Act

The Federal Trade Commission Act (a)

Which Act prohibits unfair competition in interstate commerce? a. The National Trade Commission Act b. The Federal Trade Commission Act c. Interstate Trade Bill d. The Allen Act

The Federal Trade Commission Act (b)

Federal Trade Commission Act

The Federal Trade Commission Act prohibits unfair methods of competition in interstate commerce, but carries no criminal penalties. It also created the Federal Trade Commission (FTC) to police violations of the Act. The Department of Justice also often uses other laws to fight illegal activities, including laws that prohibit false statements to federal agencies, perjury, obstruction of justice, conspiracies to defraud the United States, and mail and wire fraud. Each of these crimes carries its own fines and imprisonment terms that may be added to the fines and imprisonment terms for antitrust law violations. The FTC can enforce compliance with the Sherman Act and some sections of the Clayton Act.

The Sherman Antitrust Act of 1890

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.

Broker Jed tells buyer Sam that when he signs his purchase agreement he must also purchase a subscription to Jed's monthly newsletter. What would you say about this?

The Supreme Court ruled that: - The Sherman Act could be applied to local, intrastate activities."The concept of trade as used in the phrase restraint of trade encompasses the real estate brokerage business." Therefore, real estate practices are governed by the Sherman Antitrust Act. - The mandatory fee schedules set and enforced by various real estate boards were in violation of the Sherman Act.

What did the Supreme Court decide in the 1950 United States v. National Association of Real Estate Boards case?

The consent decree is a judgment whereby the defendant agrees to stop the activity that was asserted to be illegal, without admitting wrongdoing or guilt.

What is a consent decree?

The consent decree is a judgment whereby the defendant agrees to stop the activity that was asserted to be illegal, without admitting wrongdoing or guilt.

United States v. National Association of Real Estate Boards (399 U.S. 485, 1950)

The government first initiated this case against the Real Estate Board in Washington D.C. in 1950. The core of the case was the charge that the members of the Washington Real Estate Board combined and conspired to fix the commission rates for their services when acting as brokers in the sale, exchange, lease and management of real property in the District of Columbia. The National Association of Real Estate Boards joined in to help defend the lawsuit. The board was accused of violating the Sherman Antitrust Act and the suit was brought before the United States Supreme Court. - One of the questions to be decided was whether the Sherman Act applied only to interstate cases. - A second question was whether the word "trade" applied to the real estate profession. - The third issue was that of whether the suggesting or actual fixing of commission rates amounts to per se illegal price fixing. With regard to the above issues, the Supreme Court ruled that: - The Sherman Act could be applied to local, intrastate activities. - "The concept of trade as used in the phrase restraint of trade encompasses the real estate brokerage business." Therefore, real estate practices are governed by the Sherman Antitrust Act. - The mandatory fee schedules set and enforced by various real estate boards were in violation of the Sherman Act. Market allocation is the division of markets by location or price. An example would be two companies getting together and deciding that one company would take one part of town, while the other company takes the other part.

Class Action Lawsuits

The public has a right to sue in cases of antitrust violations. Usually this is done through a class action lawsuit. A class action lawsuit is brought by an individual, a group of individuals or a company on behalf of a much larger group with the same legal claim. A class action is appropriate where many people have been injured in the same manner, and it is too expensive or impractical to bring an individual lawsuit. Class action lawsuits are based on the idea that there is strength in numbers, and thus a smaller "representative" group can pursue an action on behalf of a much larger group who has been similarly injured.

Per Se Illegality

The rule of reason was the dominant approach to antitrust cases until the 1940s. At that time, the courts increasingly declared that various business agreements or practices were conclusively presumed to be unreasonable without elaborate inquiry about the harm caused or the business justification.

What is market allocation? Give an example.

This is a tie-in arrangement which is prohibited by the Sherman Antitrust Act.

Matt Bower is a developer. Will Jones is a builder. Matt agrees to sell Will a lot, but he conditions the sale by insisting that Will agree to list the property with him after the home is built. What is this called? a. Market allocation b. Price fixing c. Coercion d. Tie-in arrangement

Tie-in arrangement (d)

What does the Clayton Act allow private individuals to do?

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.

Antitrust laws prohibit:

businesses, monopolies aimed at establishing and maintaining competition so consumers get fair prices and goods in adequate

The benefits of competition are reduced a. when competitors agree to fix prices. b. when competitors agree to an open market. c. when competitors agree to a free market. d. when competitors agree to equal trade.

when competitors agree to fix prices. (a)