KEEPING COMPETITION FAIR

HomeState Regulation of Multinational Enterprises:

Unfair competition laws

FAIR COMPETITION IN THE MARKETPLACE

United States Anti-Competition Laws as an Example

THE SHERMAN ANTITRUST ACT OF 1890

• §1 of the Act – prohibits contracts, agreements, and conspiracies that restrain interstate or international trade

• The courts have interpreted this as applying only to conduct between two or more parties and only to contracts that unreasonably restrain trade

• In determining whether a particular activity violates §1, the courts ordinarily do so on a case-by-case basis using a so-called rule of reason

WHAT IS THE RULE OF REASON?

• The fact finder (often a judge) ways all of the circumstances of the case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.

• Over the years certain agreements or joint actions involving interstate (but not international) trade have come to be classified as illegal in and of themselves.

• These are known as per se violations of the law.

ACTIVITIES THAT ARE PER SE VIOLATIONS

• Horizontal price-fixing – where competitors at the same level expressly or impliedly agreed to charge the same price for competing products

• Vertical price-fixing – where a seller at one level sells goods to a buyer at a different level on the condition that the latter will not resell below and agreed-upon price

• Horizontal market division – where competitors agree not to sell in each other’s territories

• Joint refusals to deal – these are called group boycotts

• Once a particular kind of activity is classified as a per se violation the courts will not apply a case-by-case rule of reason analysis

§2 OF THE SHERMAN ANTITRUST ACT

• Forbids monopolies and attempts to monopolize commerce or trade either between the states (of the United States) or in international commerce that does affect United States

• Unlike §1, this section applies to the conduct of a single enterprise if the enterprise is what is called a dominant firm – that is, a company that “has the power to control the price” of the commodity it produces and has the ability to “exclude competitors from the market.”

PROOF OF A VIOLATION OF §2

• Circumstantial evidence– this is “indirect evidence” by showing a practice of discriminatory pricing such as one of the following:

• (1) “dumping” – selling goods below their cost of production

• (2) using “tying clauses” – contractual provisions requiring purchasers of one product to buy other unrelated products

THE CLAYTON ACT OF 1914

• This law was enacted to “give more teeth” to the Sherman antitrust act by:

• Expanding its enforcement provisions, and

• By defining certain act that constitute unfair business competition, such as:

• Exclusive dealing and tying clauses

• Mergers that results in a monopoly

• Interlocking directorates

ENFORCEMENT OF US ANTITRUST

LAWS• The United States Department of Justice may bring

criminal suits for egregious violations of the antitrust laws

• The United States Federal Trade Commission may bring civil actions (notably for injunctions) to ensure full compliance

• Private persons are given the right to sue and recover treble damages for injuries they may have suffered because of violations of the antitrust laws

ENFORCEMENT OUTSIDE OF THE UNITED STATES

• US courts will apply the antitrust laws of the United States outside its territorial limits

• These statutory provisions in Sherman antitrust act states that it applies to conduct affecting “trade or commerce among the several states, or with foreign nations.”

• Courts have, however, imposed several jurisdictional tests that limit the legislative rule.

• Courts require a showing that (1) and allege defendant is subject to the personal jurisdiction of the court, and (2) that the court has subject matter jurisdiction.

PERSONAL JURISDICTION REQUIREMENTS

• The American antitrust laws authorize a court to assume personal jurisdiction if a defendant has the contacts specified either by (1)§ 12 of the Clayton Act or (2) and applicable state long arm statute.

• §12 of the Clayton Act allows a court to assume personal jurisdiction over an antitrust defendant who “transacts business” in the forum jurisdiction. This is given a broad interpretation to the extent that a foreign Corporation lacking a full-time employee, an office, a bank account, or even related business property in the United States would still be subject to the personal jurisdiction of an American court

• State long arm statutes are applicable to antitrust proceedings because of of a provision in theFederal Rules of Civil Procedure that looks upon state law as an independent basis for exercising personal jurisdiction in federal cases.

JUDICIAL LIMITATIONS ON PERSONAL JURISDICTION

• The principal limitation the assumption of personal jurisdiction by U.S. Courts is the federal Constitution requirement of due process.

• This limitation forbids the court from assuming personal jurisdiction unless a defendant has minimum contacts with the forum.

• Essentially, a court has jurisdiction only if (1) the defendant purposefully did business in the forum and (2) the defendant reasonably could have anticipated that it would have to defend itself there.

SUBJECT MATTER JURISDICTION IN ANTITRUST CASES

• Two tests are used to determine whether a court has subject matter jurisdiction in an American antitrust case:

• (1) the effects test – companies carrying on business outside the United States will come with in the subject matter jurisdiction of an American court if their business activity is intended to affect US commerce and is not de minimis and

• (2) the jurisdiction rule of reason test – this is a three-pronged test to determine jurisdiction in antitrust cases involving conduct outside the United States: (a) was the alleged conduct intended to affect the foreign commerce of the United States? (b) was it of such a type of magnitude to violate the Sherman act? (c) as a matter of international comity in fairness, should a court assume extra torque territorial jurisdiction over the matter?

SUBJECT MATTER JURISDICTION (CONTINUED)

• The last of the three-pronged test (that is, part c) requires the court to use a “balancing test” to consider the following factors:

• The degree of conflict with foreign law or policy

• The nationality or allegiance of the parties in the location or principal place of business of the company’s

• The extent to which enforcement by the involved countries might be expected to achieve compliance

• The relative significance of the effects on the United States and other involved nations

• Whether the explicit purpose of the alleged conduct was to harm American commerce

• The foreseeability of the anti-competitive effects and the relative importance of the violations to commerce within the United States as compared with commerce abroad