An Introduction to U.S. Antitrust Law and How it Impacts Credit Management
Originally published: July 2012
Trusts and monopolies, which concentrate economic power in the hands of a few individuals or organizations, are viewed by most to be harmful to the business environment and the public interest. Economists, business people, and legislators agree that this type of control leads to anticompetitive and unfair trade practices and depresses economic freedom and growth.
What Are Antitrust Laws?
- The Sherman Antitrust Act of 1890: the first major legislation passed by Congress to address the oppressive business practices of the late 1800s. The Sherman Antitrust Act and its amendments form the foundation for most federal and state antitrust legislation. It provides that no person shall monopolize, attempt to monopolize or conspire with another to monopolize interstate or foreign trade commerce, regardless of the type of business entity.
- The Clayton Act of 1914: an amendment to clarify and supplement The Sherman Act as well as provide stronger enforcement capabilities. The Clayton Act was the first federal statute expressly prohibiting certain forms of price discrimination.
- The Federal Trade Commission Act of 1914: created the Federal Trade Commission and initially authorized it to issue "cease and desist" orders to large corporations in order to curb unfair trade practices. Today, all federal Antitrust Laws are enforced by the Federal Trade Commission and the Antitrust Division of the Department of Justice.
- The Robinson-Patman Act of 1936: amended the statutes within the Clayton Act that related to price discrimination. Specifically, it prohibits a seller of commodities from selling comparable goods to different buyers at different prices (with certain exceptions).
- The Celler-Kefauver Act of 1950: called by some "The Antimerger Act", it reformed and strengthened the Clayton Antitrust Act by prohibiting buying up a competitor’s assets if the result of that activity was reduced competition.
- The Hart-Scott-Rodino Antitrust Improvements Act of 1976: required that companies planning large mergers or acquisitions to notify the government of their plans in advance and established the Premerger Notification Program.
Many of the banned practices have in common the fact that they cannot be the result of collusion between competitors, for instance: price fixing, boycotts, and dividing up territories or customers. Other banned practices include:
What Specific Business Practices are Prohibited by the Antitrust Laws?
- Agreements where a seller restricts the downstream resale price of the goods.
- Arrangements to sell one product or service, only on the condition that a different product or service is also purchased.
- Price discrimination where the effect will be to lessen competition.
- Agreements between buyers and sellers to deal only with each other.
- Unilateral or concerted activities designed to monopolize a particular market.
- Agreements whereby one party or group of bidders is selected to win that bid regardless of who else may bid or what their bids contain.
- Exclusive requirements contracts that force the customer to buy all or most items from a particular seller if this results in less competition or creates a monopoly.
- Marketing claims that are false or deceptive.
What Do Antitrust Laws Have to do With Credit Management?
- Credit terms discrimination: Providing better credit terms to a specific buyer than you would normally give similar buyers. The U.S. Supreme court has ruled that credit terms are an inseparable component of price. Therefore, providing better credit terms to one customer over another falls under the price discrimination provisions of the antitrust laws. However, if there is a legitimate, non-discriminatory reason for granting a particular buyer other than your normal credit terms for that class of buyers – a cash flow problem due to an unanticipated event, for instance – then this is not considered “illegal” under the antitrust laws. And in such case, you are not required to offer the same terms to other similar buyers. Further information on exceptions to the price discrimination statutes are found in Ethics and Laws Affecting Business to Business Creditors in the Credit Assistant section of the Credit Research Foundation’s web site.
- Colluding with other credit grantors: to set credit or payment terms, or blacklist or boycott specific buyers. A company does have the right, however, to set specific credit terms or choose not to sell to specific buyers if it does so unilaterally.
- Credit References: providing inaccurate information or misrepresenting the facts.
- Promotional Programs: knowingly granting a buyer allowances that were not made available on proportionately equal terms to the buyer’s competitors.
What About Credit Groups – Are They Legal?
- Avoid exchanging information relating to price, payment terms, contracts, customers or territories.
- Discuss only historical (completed) credit transactions.
- Refrain from sharing emotional or non-factual comments regarding a particular buyer (i.e. “he’s a deadbeat”).
- Avoid any agreements among members considered illegal by the state or federal antitrust laws.
- Allow membership to all qualified applicants. The credit group can establish standard qualifications for membership including industry, territory/location, length of time in business, gross sales, membership in another designated association.