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Antitrust Laws: What Credit Professionals Should Know to Stay Out of Hot Water 

How often are you in this situation, you are on a golf outing with friends and colleagues, some of whom work for competing companies in the same industry as you, and before you know it, conversation turns from your families to business? In these situations, it is easy to accidentally disclose information that could put you in violation of antitrust laws. Before potentially landing in hot water, it is a good idea to have a general understanding of antitrust laws.

Antitrust laws are statutes developed by the U.S. Government to protect consumers from predatory business practices by ensuring that fair competition exists in an open-market economy.

The statutes use general language rather than precise definitions of the exact kind of conduct which would violate the law. Because the antitrust language is so broad, the courts have enjoyed wide discretion in interpreting and applying the law. This has been found to be desirable for the changing society in which we live; however, this flexibility has, at times, made it difficult for business to know whether certain practices violate the law.

Antitrust Laws

Sherman Act — The Sherman Act was passed in 1890 and is the most important of the antitrust laws. Section 1 of the Act prohibits every contract, combination or conspiracy between two or more companies which exerts an unreasonable restraint on trade or commerce. Section 2 prohibits the monopolization, any attempted monopolization, or any agreement or conspiracy to monopolize any market for a particular product or service.

Robinson-Patman Act — Enacted in 1936, the Robinson-Patman Act principally deals with discrimination in prices charged to competing purchasers for products of like grade and quality. Its purpose is to protect smaller businesses by limiting the large company’s ability to command discriminatory discounts through its purchasing power.

To apply, each statute requires some involvement in interstate commerce. Even wholly intrastate activity, however, has been ruled to affect interstate commerce so this standard is often met in a commercial transaction appearing to be wholly intrastate.

Penalties for violation of the antitrust laws are severe. Violation of the Sherman Act is a felony. A criminal indictment may be instituted by the Justice Department, with corporate exposure to substantial monetary fines. Individual employees, officers or directors of the company who authorize or participate in the violation face felony conviction, imprisonment and substantial monetary fines as well. Perhaps the most widely publicized violation of the Sherman Act is price fixing between competitors. Agreements between competitors to fix, raise, lower, stabilize or peg prices, or establish a range of prices, a minimum price, a maximum price, or a common pricing system are unlawful.

Agreements between competitors which may affect price have also been held unlawful. Thus an agreement among competitors to purchase certain amounts of stressed products was unlawful as it decreased market supply and increased price. Similarly, competitors who agreed to set production levels in order to limit supply (and thus increase price) acted improperly. Competitors must also avoid agreements as to the kind or amount of materials to be used in their products, or the product’s formula or design. The price fixing prohibition also extends to the terms and conditions of sale. Competitors may not agree as to trade credit terms for their customers, or agree to eliminate interest-free trade credit. Agreements as to costs, discounts, service charges, restocking charges, delivery charges and terms, product warranties, rebates, surcharges, taxes and the like are unlawful.

When Loose Lips Sink Ships 

It is important to avoid the exchange of sensitive business information with competitors without guidance from legal counsel. The exchange of price lists or prices charged to customers may violate Section 1 of the Sherman Act even though there is no agreement to fix prices, due to the natural tendency that such conduct will produce uniform or stabilized prices in the industry. Of course, you must obtain this information from some source in order to compete. But you should be able to show that you did not obtain it directly from your competitor and that you did not make your lists available to competitors.

Discussion Topics to Avoid:

• Prices, changes in or stabilization of prices, terms or conditions of sale
• Pricing policies or practices of any industry member
• Forecasts of price increases or decreases
• A specific company’s credit terms, discounts, rebates, freight allowances, profits, profit margins or costs, surcharges, market shares or sales territories
• Selection, rejection or termination of one or your suppliers or customers
• Production levels or schedules
• Bids, or intent to bid or not to bid on a contract

The next time you are hitting the links with business colleagues, remember that conversations involving business decisions and other business activities could be violating antitrust laws. These laws are complex and inadvertent violations can occur easily. For this reason, it is important to be aware of the antitrust laws and protect yourself from possible violations.