Thursday, January 31, 2008

Volume 43 - Antitrust Laws

The following is a summary of the Antitrust Laws' relevant provisions as I see them pertain to the Commercial Door Hardware Industry, and in particular Division 8 of the Master Format Specification System. It becomes very evident that many people walk a 'slippery slope' within the commercial construction industry and the manufacturers that supply product through distribution to this industry.

The first statement of United States antitrust law was embodied in the Sherman Act, which was enacted in 1890. The Sherman Act has two major provisions:

1. Agreements between two or more persons to restrain trade or commerce are illegal. The Sherman Act's first section prohibits unlawful agreements or conspiracies between two or more entities to restrain trade. These agreements do not need to be in writing. In fact, most are not. Although the terms "restraint of trade" are not defined in the statute, over the years, courts have considered many types of restrictions between competitors and have ruled that certain restrictions or limitations on free enterprise clearly violate this section. Nonetheless, three elements must be established to prove a violaation of Section 1: (1) the existence of a contract, combination or conspiracy among two or more separate entities that (2) unreasonably restrains trade and (3) affects interstate commerce.

2. Monopolizing trade or commerce is illegal. The Sherman Act's second section involves monopolization. This section is violated by the action of a single entity - it does not require an agreement. To violate this section, two elements must be present: (1) a corporation must possess monopoly power in the relevant market; and (2) a corporation must have willfully acquired or maintained such power by imporper or illegal means. These elements are not defined in the law and, therefore, are complex. There is no market percentage threshold that automatically creates an illegal monopoly. Traditionally, the courts have said that a company is a monopoly if it possessess the power to control prices or to exclude competition from a market.

The Sherman Act was supplemented in 1914 by the Clayton Act, and in 1936 by the Robinson-Patman Act. These two acts contain some basis prohibitions as:

1. A seller may not discriminate in price between purchasers when the effect may be substantially to lessen competition.

2. A corporation may not sell a product upon the condition that the purchaser will not use or purchase the product of a competitor when the effect may be substantially to lessen competition.

The Federal Trade Commission Act originally enacted in 1914 supplements the Sherman and Clayton Acts by broadly prohibiting unfair or dcptive activities.

Along with the Federal Trade Comission Act there also exists many State Antitrust Laws with over 48 states having such legislation. Such as in Ohio with the Valentine Act which specifically prohibits combinations or agreements to: (a) restrict price, (b) restrict production, (c) boycott customers, and (d) allocate markets. In addition, some state have price discrimination statutes that are similar to the Robinson-Patman Act and cover purely intrastate price differentials.

With respect to dealing with 'customers' or 'suppliers', resale price maintenance, certain boycotts, and tying arrangements are per se violations of the Sherman Act. Other areas regarding customer or supplier dealings in which antitrust problems may arise include the following: (1) Arrangements with Distributors - "Distributors" are those customers that purchase products for resale and who take title to the goods, bear all resale credit risks, and are independent entities. A manufacturer, acting alone, can select any company or person it wishes as its distributor or agent. It is also often permissible for a manufacturer to appoint a distributor as its "exclusive" distributor in a specified geographical area.

Although reasonable restrictions on territories and custromers is permissible, it is still unlawful for a manufacturer or seller by agreement, threats, pressure, persuasion, or coercion to restrict, limit, or require a distributor to use certain prices, terms or conditions upon reselling the manufacturer's products. It is also unlawful to require distributors to handle your products to the exclusion of similar products made by competitors when the effect may be a substantial lessening of competition or tendency toward monopoly. Under this test, the total number of distributors thus restricted and their size, considered in relation to the total number of similar distributors so restricted, is the key to determining legality or illegality. It takes only a very low ratio of restricted distributors to make exclusive dealing unlawful.

(2) Price discrimination - The heart of the Robinson-Patman Act which makes it unlawful for a seller to discriminate in price between the purchasers of commodities of like grade and quality where the affect may be substantially lessened competition with the seller himself, or with the favored purchaser or with customers of the favored purchasers. Price discrimination is any difference in price, no matter how small, between customers. When products are sold at substantially different prices to competing distributors for resale, a probable injury to competition between the purchasers may be presumed. The statute also prohibits "indirect" discriminations in price. Such "indirect" discrimination could occur when differing terms or condiditons of sale result in a lower price to certain buyers. For example, rebates, credit, allowances, or services provided as incidental to the original sale to some buyers that are not provided to other competing buyers would be "indirect" discrimination.

The Robinson-Patman Act also forbids a buyer from knowingly inducing or receiving discriminatory prices or services. If the seller grants an unlawful discriminatory price or performs a service not made proportionally available to competing buyers, the buyer who receives such favored treatment may also violate the law. Thus, if a buyer knows that it buys in approximately the same quantities and by the same methods as its competitors and knows that it has received substantially lower prices than its competitors, the buyer will be presumed to have violated the law. Even if the buyer purchases in larger quantities, or by different methods than its competitors, if it know that the discounts it receives are clearly greater that the seller's probable cost savings, the buyer may be held liable for receiving discriminatory prices.

This section of the Robinson-Patman Act further states with regard to discrimination between customers that it is unlawful for a seller to furnish one customer with services or facilities in connection with the processing, handling, or sale of its products, unless such services or facilities are made available on porportionaltely equal terms to the seller's competing customers. Furthermore, a manufacturer who engages in "dual distribution," by selling to wholesales and also to direct-buying dealers, must take steps to insure that services, facilities, or allowances furnished to direct-buying retailers are also made available to distributors/wholesalers who compete with direct-buying retailers.

A summation of Antitrust Laws, old laws on the books and enforceable - possibly some Federal and State attorney general employees should busy themselves to present practices within the commercial construction arena, with particular attention toward those 'playing' in Division 8.