Business Law Final - Ch 16

Name the four sanctions used to enforce the Sherman Act?

-10 years imprisonment or a $1,000,000 individual fine/$100,000,000 corporation fine or both -an injunction -triple damage suits (may gain triple the amount declared by jury as compensation) -seizure of property

What is a horizontal merger?

usually combines two businesses in the same field or industry. the acquired and acquiring companies have competed with each other, and the merger reduces the number of competitors and leads to higher concentration

What is vertical price fixing ?

(resale price management) an agreement between a seller and a buyer to fix the resale price at which the buyer will sell goods. (ex. between manufacturer and a retailer)

How does the Federal Trade Commission determine if an act is "unfair" if there is no deception or antitrust violation involved under section 5?

1. Does the conduct injure consumers significantly? 2. Does the conduct offend an established public policy? (conduct may offend public policy even though not previously unlawful) 3. Is the conduct oppressive, unscrupulous, immoral or unethical?

Describe three examples of business activities that could be declared unlawful by the FTC pursuant to these powers?

Any actions that violate the sherman or clayton acts like could be analyzed as a section five violation. Advertising campaigns also may be declared unfair or deceptive. other activites challenged by the FTC do not have to violate Sherman and Clayton acts.

In order to improve the Sherman Act of 1890 what did congress enact in 1914?

Clayton act- more specific than the sherman act in declaring certain enumerated practices illegal and the Federal Trade Commission Act.

Name the sanctions that can be imposed against a violator of the clayton act?

Injunctions and triple damages suits

Does the FTC have to prove these examples involve violations of the sherman or clayton acts to be successful in establishing an unfair method of competition or an unfair or decpetive business practice?

No. Section 5 of the FTC act is independent from both sherman and clayton acts.

Are franchise agreements which allocate an exclusive territory to the franchisee always illegal? explain.

No. the granting of exclusive territoies to franchisees may reasonably enhance competition.

The members of a real estate brokers' multiple listing service voted to raise their commission rate from 6 to 7 percent. the bylaws of the association provided for expulsion of any member charging less than the agreed upon commission. If broker Hillary continues to charge 6 percent, can she be expelled legally? Why or why not?

No. to expel Hilary would be a violation of the sherman act since such expulsion would be for the purpose of enforcing an illegal price fixing scheme.

In response to public pressure, all of the manufacturers of chewing tobacco agree not to advertise on radio or television. the resulting savings are used to reduce the price of the product to consumers. Furthermore, the use of chewing tobacco by teenagers is reduced dramatically. Is the agreement illegal? explain

Not necessarily. If the manufacturers act independently of one another, there is no illegal activity.

What role do state attorneys generally play in antitrust enforcement?

State attorneys general are authorized to bring civil suits for damages under the sherman act as well as suits for an injunction.

Through what agencies does the federal government enforce the antitrust laws?

The Justice Department's Antitrust Enforcement Division and the Federal Trade Commission.

Why is it important for courts to use the rule of reason analysis when considering actions allegedly in violation of the Sherman Act?

The actual language of the Sherman Act makes every agreement that restraints trade illegal. The rule-of reason analysis clarifies that only unreasonable restraints are to be challenged. it requires an anti-competitive component to be shown.

What analysis do courts use when judging the legality of a vertical- price- fixing plan? WHy is this legal analysis the appropriate one to use?

The courts will use rule-of-reason analysis when determining the legality of vertical price fixing. this analysis is appropriate since vertical is not inherently anticompetitive. Such practices might actually increase interbrand competition

The govt challenged the acquisition by procter and gamble (p&g) of clorox. Clorox was the leading manufacturer of liquid bleach at the time of the acquisition, accounting for 48 percent of the national sales. It was the only firm selling nationally, and the top two firms accounted for 65% of national sales. P&G is a large, diversified manufacturer of household products, with its primary activity being in the area of soaps, detergents, and cleaners. P&g accounted for 54% of all packaged detergent sales and the top three firms accounted for 50 percent of the market. P&G is among the naitons leading advertisers. What is the basis for the govts' challenge to this acquisition? explain.

The govts' best argument is that P&G is a potential entrant in the liquid bleach market. as a potential competitor, P&G should not be allowed to purchase this product position through acquisition of clorox.

What is the significance of the word incipiency in the clayton act?

The use of the word "incipiency" means that the Clayton Act was designed to stop anticompetitive behavior at the earliest possible stage.`

What is the significance of the per se analysis under the rule of reason?

When an activity is per se illegal it is presumed to be so anticompetitive that it has to be unreasonable. if an act is per se illegal then only proof of the action is required not proof anti competition for example (price fixing is per se illegal)

Can individuals or business organizations enforce antitrust laws?

Yes, usually through triple damages actions and for injunctive relief

All of the orthodontist in your community at their annual holiday party agreed to charge the parents of each child patient a nonrefundable fee of 200$ prior to beginning any treatment. they also agreeed that the charge for an orthodontia procedure would not be less than 2000$. Are these agreements in violation of the Sherman act?

Yes. these agreement among the orthodontists likely would be found to be unreasonable restraints of competitive pricing. In fact, at least the agreement to charge 200$ initial fee is so unreasonable as to be illegal per se

What is a trust? Ex?

a fiduciary relationship whereby one party (trustee) holds legal title for the benefit of another (beneficiary). ex. Grandparents gives money to your parents for use in paying your education expenses.

What is the relationship between the criminal sanction and suits for triple damages?

a finding of guilt or a guilty plea in a criminal case establishes proof of wrong in the civil case

What is a conglomerate merger?

a merger of companies that were not in competition or customers/suppliers of each other.

You are sales rep for a manufacturer of insulation. A customer that accounts for apporximately one third of your sales suddenly asks for a discount because of the volume of its purchases. You are politely told that a refusal will cause the customer to take its business to another manufacturer. Your income is solely from commissions on sales, which are calculated on gross profit margins. a) if you agree to a discount, have you broken any law? b) If you have violated a law, what are the potential consequences? c) If you give the same discount to all customers, would your actions be illegal? explain.

a) giving a discount to only one customer may violate the Robinson Patman amendment to clayton act b)your other customers claim for triple damages should be your most likely problems. either these customers or the government could also seek an injunction to stop similar discounts. c) No, the same offer of the discounted price to all customers removes price discrimination

What is the Robinson Patman act?

amendment to section 2 of the clayton act covering price discrimination. It outlawed price discrimination in interstate commerce that might substantially lessen competition or create monopoly. (attempted to eliminate large buyer secure over small buyer bc of purchasing power of large buyer)

Give an example of a product where intrabrand competition is as important as interbrand competition?

any product where the price is relatively low and ease of availability determines the buying decision. Small electronic appliance products, food items, and beverages are examples where intrabrand competition may need to be limited to increase interbrand competition.

What is a vertical territorial agreement?

arrangement between a supplier and its customers with respect to geographical area in which each customer will be allowed to sell that suppliers products. analyzed under rule of reason. limitations on intrabrand competition may be permitted if there is corresponding increase in interbrand competition

What made the burden of proving easier under the clayton act?

by stating if actions effects: may substantially lessen competition or tends to create a monopoly

What is it known as when competitors attempt to share some activities or join together in the performance of a function? (may have anticompetitive effects)

concerted activities

What is horizontal price fixing?

it is an agreement between competitors to fix prices. (per se illegal)

Section 2 of the sherman act does what?

looks to break up and prevent further monopolies from happening?

What is a vertical merger?

merger of corporations where one was the supplier of another. removes either a customer or source of supply from the market

What is the primary function of the FTC?

prevent illegal business practices rather than punish violations. it prevents wrongful action through cease and desist orders.

What is the most common practice in restraint of trade? what does it entail?

price fixing. agreement among competitors to charge same price for their products. it disallows prices to be set by operations of a free market.

What are monopolies, combinations and contracts that impede free competition?

restraint of trade

What is the state action exemption (Parker v Brown exempt)?

sherman act exemption of the sovereign action of a state that replaces competition with regulation if the state actively supervises the anticompetitive act.

The sherman act, as amended by the clayton act, seeks to preserve competition by declaring two types of anticompetitive behavior to be illegal. Describe these two behaviors.

the goal of the sherman act is competition. the sherman act declares illegal restraints of trades and monopolies or attempts to monopolize.

What is the impact of the nolo contendere plea?

the nolo contendere plea does not establish guilt in the criminal case and hence does not offer proof of a antitrust violation in a civil case.

Why has the number of cases against international cartels increased during the past ten years?

the number of international antitrust cases appears to be increasing. the reason may simply be that enforcement attention is now focused on these international cartels. another reason likely relates the fact that business is more global today.

The operators of adult bookstores got together and each agreed to contribute $1000 to a fund for use in lobbying the city council to repeal an ordinace which mad e the sale of sexually explicit publications a crime. if the operators are charged with violating the antitrust laws, what will be the likely defense. explain

these operators would use the Noerr-Pennington Doctrine as their defense that they are exempt from the sherman acts application. Which exempts efforts of groups from anti trust violation if they are persuading government officials.

The justice department filed a civil suit claimingthat Grinnell Corporation had a monopoly in the operation of central station hazard-detecting devices. These security devices are used to prevent burglary and detect fire. they involve electronic notification of the police and fire departments at a central location. Grinell, through three seperate subsidiaries controlled 87% of that business. It argues that it faces competition from other modes of protection from burglary, and therefore it does not have monopoly power. What argument does the Justice Department have to make to prove its claim that grinnell is operating an illegal monopoly?

to be illegal, the monopoly must have been deliberatively acquired or used. a firm is guilty of monopolization when it acquires or maintains monopoly power by a course of deliberate conduct that keeps other firms from entering the market or expanding from a share of it Yes. Grinnell has monopoly power in the market with 87% control if the proper market was chosen. The geographic market is the nation. the product market is central station hazard-detecting systems. the court must consider whether there are "substitutes" that should be considered in determination of market share. None of the substitutes for the accredited central station service meet the interchangeability test. the market power was achieved by unlawful and exclusionary practices that establish the violation.

Describe the situations when a supplier can legally fix the minimum price that a customer bust charge its buyers?

vertical minimum price fixing is permissable under the colgate doctrine. the supplier must announce the minimum price its customers can charge, and the supplier must directly enforce this pricing policy. the use of any intermediary in the enforcing program likely will result in a finding of an illegal price fixing arrangements.

What is a horizontal territorial agreement?

when competing business agree to use exclusive territory to operate. it is illegal per se under sherman act

When is an injunction frequently used under sherman act?

when success of criminal prosecution is doubtful. it takes less proof to enjoin an activity (preponderance of the evidence) than it does to convict of a crime (beyond a reasonable doubt)

A group of lawyers in private practices who regularly acted as court-appointed counsel for indigent defendants in District of Columbia criminal cases agreed at a meeting of the superior Court Trial Lawyers Association to stop providing such representation until the District increased group members' compensation. The boycott had a severe impact on the District's criminal justice system, and the district grovernment capitulated to the lawyers demands. after the lawyer returned to work, the ftc filed a complaint against the SCTLA and four of its officers, alleging that they had entered into a conspiracy to fix prices and to conduct a boycott that constituted unfair methods of competition in violation of Section 5 of the FTC act. Does the FTC have the authority to bring a section 5 case against the lawyers? explain?

yes. the outcome of this care turns on the application of various exemptions from the antitrust laws (which the supreme court concludes are not applicable here). However what is clear is that the case brought by the FTC is entirely within that agencies authority under Section 5--which directs the FTC to prevent unfair methods of competition in commerce.

Assume all manufacturers of computer chips entered into an agreement whereby each agreed to exchange information as to the most recent price charged or quoted to a consumer. Is this agreement a violation of the sherman act? why or why not?

yes. this exchange of information is likely to be held as an unreasonably anticompetitive activity. (indirect price fixing)