Trade Practices

1. Trade Practices • Common law • Covenant not to compete • Must be reasonable • Society demands laws against predatory business practices • Legislation • Laws are vague • Reliance on court interpretation

2. Antitrust Laws • Views • Chicago School • Promote economic efficiency • Large firm size derived from superior competition • Less concern about vertical restraints • Traditionalists • Promote social goals • Favor more enforcement • Large firms possess economic & political power

3. Penalties • Pleas • Guilty, not guilty, nolo contendre • Nolo contendre same penalty as guilty, but cannot be used in civil cases • Criminal penalties • Prison • Fines up to $10 million

4. Penalties • Civil remedies • Treble damages • Attorney fees • Equitable remedies • Injunction • Dissolution (cease business) • Divestiture • Divorcement (separate) • Contract cancellation

5. Sherman Act • Monopoly • Monopoly power • Relatively inelastic demand curve • Market share over 50% • Relevant market • Geographic market • Submarket • Product market • Purposeful or willful attempt to monopolize • Attempt does not need to be successful, but to have a dangerous probability of success • Exception: monopoly acquired through superior skill, foresight & industry

6. Sherman Act • “Contract, combination, or Conspiracy” • Joint action • “conscious parallelism” does not prove an agreement to joint action • Rule of reason • Per se violation

7. Sherman Act • Horizontal Price-fixing • No defense • Minimum prices • Maximum prices • List prices • Following a price leader • Production limitations • Limitations on competitive bidding • Credit arrangement agreements

8. Sherman Act • Division of Markets • Agreement to divide a market • Reduces interbrand competition • Per se violation • Group Boycotts & Refusals to Deal • Well intentioned • Per se violation; unless firms do not have market power • Anti-competitive

9. Sherman Act • Joint ventures • Subject to court consideration • Exceptions • Noerr-Pennington doctrine • Prior approval

10. Vertical Trade Restraints • Resale Price Maintenance • Minimums – rule of reason • Maximums – per se violation • Inhibits intrabrand competition • Consignments usually ok • No enforcement of “suggested retail price” • Sole Outlets & Exclusive Distributorships • Subject to “rule of reason” • Amount of interbrand competition

11. Vertical Trade Restraints • Customer & Territorial Restrictions • Subject to “rule of reason” • Free-rider problems • Interbrand v. intrabrand competition • Market power of manufacturer • More favorable to new manufacturers

12. Vertical Trade Restraints • Tying arrangements • Distort competition • Per se violation • Market power • Tie-in affects substantial amount of commerce • Defenses • New-industry • Goodwill

13. Vertical Trade Restraints • Exclusive Dealing or Requirements Contracts • Inhibit intrabrand competition • Treated more leniently than tying arrangements • Generally ok if manufacturer does not have great market power • Rule of reason • Degree of competition decrease • Duration of the agreement • Entry barriers

14. Vertical Trade Restraints • Price Discrimination (Robinson-Patman Act) • Purchases must be made at the same time • Can apply to indirect charges • Like grade or quality • Injury to competition • Defenses • Legitimate cost differences • Meeting the competition • Illegal for buyers as well

15. Horizontal Mergers • Eliminates competition • May increase market power to distort competition • May increase industry concentration • Supreme Court more lenient since the 70’s • Failing company • Small company • International markets

16. Vertical Mergers • May block competitors’ access to market • May eliminate a potential competitor (firm itself) • Eliminate benefits of threatened competition • Courts historically have not examined efficiency arguments

17. Conglomerate Mergers • Related businesses • Geographic extension

18. Interlocking Directorates • Illegal under the Clayton Act • Large firms • Anticompetitive agreements would violate antitrust laws

19. Exemptions • State Act • Must be a formal state policy • Must be supervised by the state • Petitioning the Government • Exempts political activity • Unions • Monopolies • Group boycotts • Specific regulated industries • Insurance • Banking • Airlines • Utilities • Financial services

20. Federal Trade Commission • Deceptive Advertising • Claims that can be proven false • Implied representations • Regulates franchising • Cooling off periods • Unsolicited mail • Sweepstakes/contests • Negative option plans • Mail order merchandise • Telephone solicitations

21. Lanham Act • Trademark infringement • Appropriating another’s name of likeness for commercial purposes • Trade dress infringement • “palming off” or “passing off”