By: Paul Kaplan, Esq.
Brief Overview of Antitrust
The practice of antitrust has evolved significantly since its inception in the 19th Century. In the 19th and 20th Centuries, trusts were the preferred corporate structure to organize businesses. The breakup that was ordered in the Standard Oil and American Tobacco cases of 1911 reflected this newly established legislative effort. “Cartels, horizontal mergers of monopolistic proportions, and predatory business tactics” were identified as problems to be solved, as the late Judge Robert H. Bork pointed out in The Antitrust Paradox. Trust Busters were complementary words. So, in order to break up these trusts, the Sherman Act was enacted in 1890, and the concept of “antitrust” was enshrined in our laws. Today, the antitrust laws, while still concerned with consumer welfare, have been widely viewed as the very foundation of our Charter of Economic Rights. As the Sherman Act states, the Act is intended as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.”
Antitrust Today
Antitrust now informs most of every decision of businesses, whether start-ups or Fortune 100 companies. Antitrust laws are crucial in maintaining competition in the marketplace, preventing illegal monopolies, and promoting consumer welfare. In the United States, three primary federal statutes form the foundation of antitrust: the Sherman Act, the Clayton Act, and the Federal Trade Commission Act.
Sherman Act, 15 U.S.C.A. Section 1
The Sherman Act is the cornerstone of antitrust legislation. Briefly, Section 1 prohibits every contract, conspiracy or combination that restrains trade or commerce and, Section 2 prohibits monopolies, attempted monopolies or conspiracies to monopolize. A recent case illustrating the prohibition under Section 2 is United States v. Google, where Google was found to have maintained an illegal monopoly in the search engine market through anti-competitive practices.
Clayton Act, 15 U.S.C.A. Section 1
The Clayton Act, enacted in 1914 in response to a perceived weakness of the Sherman Act, addressed incipient practices that could lead to anticompetitive conduct: price discrimination (Robinson-Patman Act), tying and exclusive dealing agreements, and horizontal and vertical mergers that may either substantially lessen competition or tend to create a monopoly. The recent case of In The Matter of The Kroger Company and Albertsons Companies, Inc. brought by the FTC in 2024, exemplifies the Clayton Act’s enforcement, where a $24.6 billion merger was prohibited due to its potential to reduce competition in the supermarket industry, as the parties represent the #1 and #2 in traditional supermarket chains. As the complaint sets forth, “The proposed acquisition is by far the largest supermarket merger in U.S. history. If allowed, this merger would substantially lessen competition, likely resulting in Americans paying millions of dollars more for food and other essential household goods, as well as reducing the ability of hundreds of thousands of workers to secure better wages and benefits.”
Federal Trade Commission Act, 15 U.S.C.A. Section 45
The Federal Trade Commission Act established the Federal Trade Commission (FTC) to enforce antitrust laws and protect consumers. The FTC Act declares unlawful unfair methods of competition, and unfair or deceptive acts or practices.
Understanding these laws and their applications is essential for businesses to navigate potential antitrust issues effectively. Engaging in open discussions about these principles can help clients identify and mitigate risks associated with antitrust violations. See, FTC v. Intuit, Inc. (2024). (“The Federal Trade Commission is taking action against Intuit Inc., the maker of the popular TurboTax tax filing software, by issuing an administrative complaint against the company for deceiving consumers with bogus advertisements pitching ‘free’ tax filing that millions of consumers could not use. In addition, to prevent ongoing harm to consumers rushing to file their taxes, the Commission also filed a federal district court complaint asking a court to order Intuit to halt its deceptive advertising immediately. The Commission alleges that the company’s ubiquitous advertisements touting their supposedly ‘free’ products, some of which have consisted almost entirely of the word ‘free’ spoken repeatedly, mislead consumers into believing that they can file their taxes for free with TurboTax. In fact, most tax filers can’t use the company’s ‘free’ service because it is not available to millions of taxpayers, such as those who get a 1099 form for work in the gig economy, or those who earn farm income. In 2020, for example, approximately two-thirds of tax filers could not use TurboTax’s free product.”)
The Dual Role of Antitrust Laws in Litigation: A “Sword” and a “Shield”
Antitrust laws serve a dual purpose in litigation, acting both as a sword and a shield. This duality is vividly illustrated in several notable cases, including:
Macquarie Group Limited v. Pacific Corporate Group, LLC Simon Property Group, L.P. v. Retailing Enterprises, LLC QHC Upstate Medical, P.C. v. New York Quality Healthcare Corp.
Macquarie Group Limited v. Pacific Corporate Group, LLC
In the case of Macquarie Group Limited v. Pacific Corporate Group, LLC, antitrust laws were employed as a sword. Here, the plaintiff used antitrust claims to aggressively challenge the defendant’s business practices, alleging anti-competitive behavior that stifled market competition. Defendants had filed a state action against Plaintiffs and Plaintiffs filed a federal action. This case exemplifies how antitrust laws can be employed to attack and dismantle restricted trade practices under federal and state law, a group boycott and deceptive acts or practices, thereby promoting fair competition and protecting consumer welfare.
Simon Property Group, L.P. v. Retailing Enterprises, LLC
Conversely, in Simon Property Group, L.P. v. Retailing Enterprises, LLC, antitrust laws served as a shield. The defendant invoked these laws as counterclaims to defend a breach of contract judgment where the Plaintiff used unfair competition, a price-fixing scheme, to put the defendant out of business. This defensive use of the antitrust laws underscores how antitrust laws can protect businesses even where the underlying claim may not ostensibly raise an antitrust issue.
QHC Upstate Medical, P.C. v. New York Quality Healthcare Corp.
In QHC Upstate Medical, P.C. v. New York Quality Healthcare Corp, the dual role of antitrust laws was evident, as a sword and a shield. Plaintiff claimed a restraint of trade and a vertical group boycott under New York’s antitrust law, the Donnelly Act in response to a Court judgment that Plaintiff violated the Insurance carrier’s Standard Health Services Agreement. These cases collectively demonstrate the versatile application of antitrust laws, underscoring their critical role in maintaining a competitive marketplace.
Impact on High Tech Litigation
The application of antitrust laws is particularly significant in high-tech litigation, where market dominance and innovation intersect. The case of United States v. Google, LLC exemplifies the use of antitrust laws to address concerns over monopolistic practices in digital advertising and search engine markets, where Google has been liable for violating Section 2 of the Sherman Act. Similarly, United States v. Apple, Inc. highlighted issues related to how previously approved acquisitions of WhatsApp and Instagram can be grounds for a Section 2 Sherman Act claim, as well as an inquiry into the anticompetitive nature of the acquisitions. A trial to determine these issues has been ordered by the U.S. District Court for the District of Columbia.
These cases underscore the pivotal role of the antitrust laws as they are applied to the business conduct of high-tech industries, while ensuring that technological advancements do not come at the expense of a competitive marketplace.
Antitrust laws continue to evolve, adapting to the complexities of modern markets and serving as a vital tool in both challenging and defending business practices.
For further guidance on antitrust matters, please contact Paul Kaplan at [email protected]
