An Overview of American Antitrust Laws and Trade Regulation

The Use of Federal Statutes to Promote Fair Competition

One of the essential components of the American economic system is the promotion of fair competition. To ensure that moneyed or powerful interests don’t wrongfully collude and restrict free enterprise, the United States Congress has, over the past 130 years, enacted a number of “antitrust” statutes, aimed at preventing price fixing, unlawful restraint of trade, and the establishment of monopolies.

What Is an Antitrust Law?

An antitrust law is written law, enacted by a legislative body, designed to support and promote free competition and restrict collusion or monopolies. Because most American antitrust law is administered at the federal level, most of the nation’s antitrust laws have been enacted by the United States Congress.

What Is the Scope of Antitrust Law?

While the first antitrust laws were broadly applied to businesses of all kinds, since the Clayton Act, in 1914, there have been key limitations to the scope of antitrust law.

• Pursuant to the Clayton Act, the antitrust laws may not be used to prevent workers from forming or participating in labor unions.
• Another key area where the antitrust laws do not apply is professional sports, pursuant to a 1922 U.S. Supreme Court ruling, which held that the organization of professional sports does not involve interstate commerce.
• Antitrust laws are deemed subordinate to First Amendment rights, allowing some immunity to media entities.
• Insurance companies have limited rights to circumvent antitrust laws under another federal statute.
• The federal government may grant a monopoly in an industry where the involvement of multiple entities is impractical.

There’s also one area—the defense industry—where any proposed consolidation, merger, or acquisition is subject to greater scrutiny.

What Are the Key Federal Antitrust Laws?

There are three principal pieces of federal legislation that make up the body of American antitrust law:

• The Sherman Act
• The Clayton Act
• The Robinson-Patman Act

What Is the Sherman Antitrust Act?

Enacted in 1890 and named after Senator John Sherman of Ohio, the Sherman Act bans both conduct and contracts that are anticompetitive or that seek to monopolize a specific market. Under the Sherman Act, the United States Department of Justice has the power to file legal action to seek a court order enjoining or prohibiting acts in violation of the statute. The law allows private entities to seek monetary compensation for anticompetitive acts, including treble (i.e., triple) damages. The Sherman Act also allows for the creation of an “innocent monopoly,” based entirely on merit, but bans companies from artificially raising or lowering prices in order to create a monopoly.

What Is the Clayton Antitrust Act?

Though the Sherman Act bans trusts and cartels, it does not make mergers illegal. Consequently, the quarter of a century between the enactment of the Sherman Act and the passage of the Clayton Act saw an unprecedented number of mergers.

The Clayton Act bans:

• Any merger or acquisition that has the effect of limiting or impeding competition
• Any price discrimination between different customers that impedes or lessens competition
• The membership of any person on the board of directors of two competing corporations
• Any exclusive dealings with customers that limit competition
• Requiring customers to purchase certain products in a way that negatively impacts competition

Another unintended response to the Sherman Act by corporations was its use to prevent the organization of labor unions. The Clayton Act exempts labor unions from the restrictions imposed by the Sherman Antitrust Act.

What is the Robinson-Patman Act?

Technically an amendment to the Clayton Act, the Robinson-Patman Act, passed by Congress in 1936, focuses on limiting and eliminating anticompetitive price discrimination. The statute mandates that a business charge the same price for its products, regardless of the buyer. The act only applies, however, to “tangible” goods that are similar in quality and are manufactured, fabricated, or assembled at or around the same time. Notable services that are not regulated by Robinson-Patman include internet, cellphone, and cable television services.

Initially, Robinson-Patman was primarily enforced by the federal government. However, in the 1960s, because of pressure from the business community, the federal government ceased all enforcement, leaving it exclusively to private individuals. The Federal Trade Commission sought to revive the statute in the 1980s, but it is rarely enforced in today’s business climate.

Summary

There are a number of federal statutes in place to help prevent unfair competition by regulating the creation of monopolies, as well as the use of price-fixing and unlawful restraints. The law allows the federal government to take action to limit unfair competition and allow businesses and private individuals to sue for damages caused by unfair competition.