Author: Jarod Bona
Law school exams are all about issue spotting. Sure, after you spot the issue, you must describe the elements and apply them correctly. But the important skill is, in fact, issue spotting. In the real world, you can look up a claim’s elements; in fact, you should do that anyway because the law can change (see, e.g., Leegin and resale price maintenance).
And outside of a law-school hypothetical, it usually isn’t that difficult to apply the law to the facts. Of course, what makes antitrust law interesting is that it evolves over time and its application to different circumstances often challenges your thinking. Sometimes, you may even want to ask your favorite economist for some help.
Anyway, if you aren’t an antitrust lawyer, it probably doesn’t make sense for you to advance deep into the learning curve to become an expert in antitrust and competition doctrine. It might be fun, but it is a big commitment to get to where you would need to be, so you should consider devoting your extra time instead to Bitcoin or deadlifting.
But you should learn enough about antitrust so you can spot the issues. This is important because you don’t want your company to violate the antitrust laws, which could lead to jail time, huge damage awards, and major costs and distractions. And as antitrust lawyers, we often counsel from this defensive position.
It is fun, however, to play antitrust from the offensive side of the ball. That is, you can utilize the antitrust laws to help your business. To do that, you need a rudimentary understanding of antitrust issues, so you know when to call us. Bona Law represents both plaintiffs and defendants in antitrust litigation of all sorts.
This is just issue-spotting, so you don’t need to know the elements or how to resolve the antitrust issues or whether you actually have a claim: You should know enough to know whether to make a phone call.
With that, here are ten antitrust issues to consider when evaluating whether to call us.
1. It Just Doesn’t Seem Fair.
Fairness, of course, is an empty term. It is more of an emotion than an objective description of a situation, as what is “fair” is often context- and perspective-dependent. It also depends on the level of generality that you want to analyze. Something may seem unfair at an individual or narrow level, but may make more sense at a broader systems level. This, of course, is a major source of political policy differences that we won’t go into here.
In any event, what you are looking for here, as a first consideration, is a gut feeling, even an emotion. You submit this feeling as evidence, but it can be an initial alarm for you as to whether to explore further.
You have an idea of what competition is and you notice that your competitor or supplier or even customer is doing something that just doesn’t seem like fair competition. Please note that I am not using the term “fair competition” as some socialist backdoor to destroy capitalism. Nor am I using “fair” as in everyone receives a trophy and nobody loses. No, that isn’t really competition.
What I mean is that your potential adversary is doing something that feels like cheating—like finding a loophole or structural way around actually competing.
I don’t mean that they are competing better or that they are bigger and can therefore offer discounts because of their economies of scale or that they are offering low prices that just seem unfair. No, that is also likely competition. What I mean is that they are somehow cheating.
This first consideration has a high false-positive rate because many people view competition as unfair. You have to try to think objectively. But, anyway, it is a good start because most successful antitrust cases invoke a feeling of “unfairness” about the underlying conduct.
We receive a lot of calls, for example, from unhappy distributors that are subject to Minimum Advertised Price (MAP) policies. But many of these situations are false positives because suppliers/manufacturers have a lot of flexibility in how they or whether they deal with distributors/retailers. You are, however, welcome to contact us to explore further.
2. Horizontal Activity.
Once your antitrust radar goes up, you can start to look for activities and structures that might suggest an antitrust violation. Most prominently, horizontal activity—that is, activity between or among current and potential competitors—raises suspicion under the antitrust laws.
That doesn’t mean that antitrust and competition regimes lock competitors in separate rooms never to even lay eyes on one another. But it does mean that certain cooperation among competitors increases the likelihood of a legitimate antitrust issue. This is especially true if the cooperation eliminates competition among them. The obvious per se antitrust claims involve price-fixing, market-allocation agreements, boycotts and bid-rigging, but any diminution of competition from a deal among competitors might state an antitrust claim.
Keep in mind, however, that a price-fixing agreement among your competitors doesn’t typically harm you. It probably harms your customers, but unless you suffer antitrust injury, you don’t have a claim. I mention this because there are many cases where one competitor accuses the other competitors of fixing prices and is routinely bounced out of court.
If you notice that your competitors are collectively doing something to keep either your customers or suppliers (or anyone else) from working with you, you might have an antitrust claim. Similarly, if a group of suppliers or customers have an agreement (often in secret) to avoid dealing with you, you might have an antitrust claim.
If you think this is an issue for you, you might enjoy our article about marketplace bullying.
To state a per se group boycott claim, there has to be some sort of agreement among competitors at one of the levels: your competition, your suppliers, or your customers, for example. That doesn’t mean that if a customer simply stops hiring you, you can sue them under the antitrust laws.
4. Market or Monopoly Power.
Typically, for a vertical agreement—an agreement between players at different levels—to violate the antitrust laws, one of the parties must have market power. The issue of market power is often complex, but roughly it means that the competitor has at least 30 to 40 percent market share or some other advantage that allows it to act in the market without or with less regard to competition. If you want to show monopoly power, the relevant market share is usually much higher. You can, of course, also show market or monopoly power more directly, which doesn’t require analysis of market definitions and shares.
The legal determination of market power is often greatly disputed, requiring complex legal and economic analysis. The first screen of market power, however, is a gut feeling. If you participate in an industry, you have an idea who has market power.
The nuances of foreclosure are complicated and I won’t get into them here.
If, for example, one of your competitors has a deal with one of your customers that effectively keeps you from competing in the market, you might have an antitrust claim under a foreclosure theory. This often comes up with loyalty discounts, bundling, or exclusive dealing.
It isn’t enough that you merely lose a contract or get beat in an RFP for an exclusive short-term deal with a customer. It means that your competitor is doing something that structurally keeps you from competing in the market.
The line between legal and illegal is a fine one and the law isn’t always clear. So when it doubt, make a call.
6. Raising Rivals’ Costs and “Cheap” Exclusion.
My terminology is imprecise here, so if you are an antitrust expert, please forgive me. But I am using these terms to roughly denote the situation where your competitor is doing something to raise your costs or make it more difficult for you to do business.
This doesn’t mean they are improving their product or service, so it will cost you more to compete. It means they, for example, show up at the retailer where you both compete for customer sales and hide your products or knock down your displays. Or perhaps they start your factory on fire.
Anyway, they are doing something to you that raises your costs of doing business, but doesn’t really make sense from a legitimate competition standpoint. I would include disparagement-type offenses here, which could be a blog post or article by itself. Sometimes this can include a refusal to deal with you.
This is the type of violation that will really seem unfair.
7. Tying and Leveraging.
Many antitrust claims are premised on the idea that a company with economic power in one market can utilize that power to force its customers to make purchases from them in another market.
For example, a potential tying claim may occur when a monopolist in one market requires that customers that purchase the monopolized product also purchase another product in a competitive market. The competitor in the second market, the competitive one, might have trouble competing because the customers must purchase the product from the monopolist because they have to do so to obtain the first product (from the monopolized market). And a negative tying claim occurs when the company with economic power in one market tells customers that if they want the relevant product, they can’t purchase from a competitor in another particular market.
8. Predatory Pricing.
It is rare that a straight price cut violates the antitrust laws. Of course, price-cuts based upon market-share requirements (loyalty discounts) or purchasing products from separate markets (bundling) present unique issues.
But a straight price cut in a single market, no strings attached, is usually pro-competitive. There are rare instances, however, where the antitrust laws will condemn such a price cut: When the price-cutter is a monopolist that cuts prices (1) below its own variable costs (roughly); and (2) there is a reasonable likelihood that it can recoup those loses by raising prices after extinguishing its competitors from the market. An agreement among multiple competitors to take turns cutting prices to eliminate another competitor could also create an antitrust issue.
Companies don’t like it when their competitors cut prices and it often feels unfair. It may also seem like the price cuts are keeping you from competing. And it is possible that you have a claim for predatory pricing. But not likely. The stars have to align perfectly and the courts are, sensibly, skeptical of such claims.
9. Antitrust Injury.
No matter what your claim, you have to demonstrate antitrust injury to prevail. That means that your injury must flow from that which makes the conduct illegal under the antitrust laws. The harm to you must arrive from the competition-reducing aspect of the conduct. This is hard to explain in the abstract, but keep it in mind.
10. Harm to Competition.
Finally, in the end, the question is really whether the conduct helps or hurts competition itself. There are some claims, of course, where the harm to competition is presumed: the per se antitrust violation. Those are claims like price-fixing and market-allocation that are so anticompetitive, the antitrust doctrine just presumes the competitive harm because they are so bad.
Disagreements permeate almost every piece of antitrust doctrine and the law evolves. But what stays constant is that the purpose of antitrust is to protect competition. That has meant different things during different eras.
Ultimately, the question is whether the conduct is competition itself or inhibits competition. The answer isn’t always easy. But as you issue spot, always keep this idea in mind.
There are, of course, other complexities and types of antitrust claims, so don’t rely on this checklist of sorts as completely inclusive of everything, but it is a good start.
Please feel free to contact us if you think you might have a situation that calls for further analysis.