An introduction to antitrust enforcement
Broadly speaking, antitrust laws and regulations refer to that body of law that governs the conduct of competitive behavior by commercial enterprises at global scale. While the precise details of such laws vary considerably by jurisdiction, the principal objective of these laws is to criminalize anticompetitive conduct to ensure that markets remain efficient and innovative. While Canada is the first country in the world to have adopted modern antitrust legislation with the enactment by the Canadian Parliament in 1889 of the “Anti-Combines Act,” most contemporary antitrust laws have been modeled on the ubiquitous Sherman Antitrust Act (“Sherman Act”), enacted by the Congress of the United States one year later. Among other things, the Sherman Act criminalizes any conduct in restraint of trade, as well as any monopolization. Subsequent to the enactment of the Sherman Act, however, the Congress enacted additional consumer antitrust protections in the form of the Clayton Act and Federal Trade Commission (“FTC”) Act.
The proliferation of antitrust legislation on an international basis—especially over the course of the past two decades—makes it prohibitive to discuss the particulars of each such regime by country in the context of a single article. Nonetheless, we attempt to highlight the continued relevance of the U.S. antitrust legal regime and the emerging importance of the European Union’s competition laws to international organizations.
Antitrust enforcement in the United States
As previously mentioned, a longstanding patchwork of statutes at the federal level informs and governs the enforcement of antitrust norms in the United States, including the Sherman Act, the Clayton Act, and the FTC Act.
Section 1 of the Sherman Act prohibits entering into any agreement that might unreasonably restrain trade. Conversely, Section 2 of the Sherman Act prohibits both attempted monopolization and successful attempts at harnessing and utilizing monopoly power.
These proscriptions are supplemented by Clayton Act provisions that forbid price discrimination, exclusive dealing and tying arrangements, and mergers and acquisitions where the effect of such activity is to “substantially lessen” commercial competition or give rise to monopoly power. Notably, the Clayton Act further prohibits any person from serving as the director of two or more competing corporations (excepting banks, banking associations, and trust companies) under certain circumstances. While violations of the Sherman Act carry criminal penalties, infractions of the Clayton Act carry the potential for the imposition of civil penalties only. In addition to enforcement by federal agencies—principally the U.S. Department of Justice and the U.S. Federal Trade Commission—the Clayton Act also provides private plaintiffs with a right of action in federal court to enforce its provisions. Under this feature of the Clayton Act, a private plaintiff that prevails in enforcing any facet of existing antitrust laws is entitled to the recovery of damages—to include an award of treble or triple damages—as well as reimbursement of costs and attorney’s fees from the violator. The Clayton Act further empowers aggrieved parties to rely on a successful enforcement action initiated by competent authorities in bringing civil suit. Under this feature of the Clayton Act, when a defendant is convicted of violating the Sherman Act, or the government prevails in a civil action brought to enforce other provisions of the antitrust laws against a defendant, a private plaintiff may rely on the preceding conviction or judgment as prima facie evidence against the same defendant in subsequent litigation.
In contrast, the FTC Act bolsters the protections encapsulated in the Sherman Act and Clayton Act by empowering a federal agency—the U.S. Federal Trade Commission—to enforce government regulations that prohibit unfair methods of competition or other unfair or deceptive acts or practices. Pursuant to Section 5 of the FTC Act, the Federal Trade Commission is empowered to challenge business practices that violate the Sherman Act or other federal antitrust laws as well as conduct that inhibits competition—regardless of whether the conduct is prohibited by other federal antitrust laws. Section 5 permits the Federal Trade Commission to obtain equitable and other injunctive relief against violators and to issue complaints in the context of administrative proceedings to compel individuals and entities that engage in antitrust violations to cease and desist from such misconduct.
As a practical matter, contemporary enforcement of antitrust laws in the United States focuses largely on cartel activity; that is, direct or indirect agreements between two or more organizations to fix prices, rig bids, artificially limit production or supply, and/or divide markets or customers. Such agreements are per se illegal under Section 1 of the Sherman Act and carry a host of severe legal repercussions, including criminal financial penalties of up to $100 million or twice the gain or loss realized from the underlying violation, if more. Other illegal forms of activity under federal antitrust laws include any agreements to collaborate with an organization’s competitors when the object of that collaboration is to hinder competition, as well as anticompetitive dealings with an organization's customers and suppliers in the form of resale price restrictions, exclusive territory agreements, and discrimination in pricing, among other things.
Increasingly, an organization’s participation in trade association meetings and joint ventures has also drawn regulatory scrutiny. While participation in trade association meetings is not itself a violation of federal antitrust laws, organizations that engage in anticompetitive activity under the guise of such meetings face severe penalties if their activity is found to constitute participation in a cartel. As such, organizations are cautioned to appropriately train their personnel in advance of any trade association meetings and to recognize when discussion of permissible activities may morph into conduct that runs afoul of federal antitrust laws. In particular, organizations should counsel their employees to refrain from divulging any confidential or proprietary information during such meetings, and to report suspected violations of antitrust laws promptly to the legal or compliance functions of the organization as soon as possible. In a similar vein, organizations should exercise appropriate caution when faced with the prospect of entering into any joint venture agreements, whereby two or more organizations agree to leverage their expertise or capabilities to accomplish a particular commercial objective. While most joint ventures can be structured without violating antitrust laws, careful consideration of joint venture agreement provisions (including, most notably, any provisions that purport to allocate markets or fix prices) must be undertaken by competent counsel.
Antitrust enforcement in the European Union
The antitrust—or more aptly, “competition”—framework in the European Union (“EU”) is comprised primarily of articles contained in the Treaty on the Functioning of the European Union (“TFEU”) as supplemented by the EU Merger Regulation.
Article 101(1) of the TFEU ingrains in EU law a prohibition concerning any measure that prevents, restricts or distorts competition within the internal market. This includes agreements to directly or indirectly fix purchase or selling prices and other trading conditions; that purport to limit or control production, markets, technical development, or investment; that allocate markets or sources of supply; that apply dissimilar conditions to equivalent transactions with other trading parties; or that condition the conclusion of contracts subject to acceptance by other parties of supplementary obligations having no connection with the subject of such contracts. Article 101(1) explicitly renders any such agreements void. Concomitantly, Article 102 of the TFEU prohibits any “abuse” by one or more undertakings of a dominant position within the internal market in a way that would adversely impact trade by and among Member States. Notably, however, the mere occupation of a dominant position within the internal market is not itself a violation. Article 102 affirmatively requires that the organization occupying a dominant position exploit or “abuse” that position for commercial advantage.
Finally, the EU Merger Regulation broadly empowers the European Commission (“Commission”) to review certain cross-border mergers, acquisitions, and joint ventures and to prohibit the operation of such undertakings when they are inconsistent with the interests of the internal market. In this vein, the Merger Regulation requires that the Commission assess planned merger and acquisition activity involving companies with a turnover above certain thresholds to evaluate their impact on economic competition within the European Economic Area (“EEA”) or any substantial portion thereof. The Merger Regulation applies to any “concentration” activity as defined in Article 3(1), which arises if there a lasting change in control involving the merger of two or more independent undertakings or an acquisition by one or more undertakings of direct or indirect control of the whole or part of one more undertakings. Under the Merger Regulation, notice of all planned concentrations with an “EU dimension” must be given to the Merger Registry of the EU’s Competition Directorate prior to implementation.
While the EU has been more aggressive in recent years than the United States in blocking proposed concentrations, complete prohibitions respecting merger and acquisition activity are still the exception rather than the rule. Nonetheless, statistics compiled by multinational law firm Linklaters reveal that intervention rates in relation to merger control activity in the EU is increasing, with nearly 15% of cases in Phase 1 of the EU merger review process being subject to conditional approval over the last twelve years. The same statistics reveal that prohibition decisions have increased from 10% to 12% over the relevant period. More commonly, organizations are subject to the enforcement of Articles 101 and 102 via so-called “commitment decisions” or resolutions pursued by the Commission that resolve potential infringement cases on the basis of remedial measures adopted by the target organization. In such instances, no fines are imposed on the would-be violator in exchange for its ‘commitment’ to resolve competition complaints by taking action to address the Commission’s concerns. Nonetheless, violations of EU competition law continue to carry the specter of significant pecuniary penalties of up to 10% of the overall annual turnover of a commercial organization for the most egregious violations.
Key takeaways for compliance professionals
Compliance professionals must be acquainted with the basics of antitrust prohibitions that are applicable in any jurisdiction where an organization conducts business. As the foregoing primer shows, however, antitrust legislation at its core prohibits any anticompetitive conduct. As such, organizations that are exposed to overlapping legal regimes can mitigate their antitrust risk by following a set of universal principles that will largely reduce antitrust risks across the board. These principles include, but are not limited to, avoiding even the slightest appearance of impropriety in the context of cartel agreements; refraining from exchanging or discussing sensitive or confidential information with competitors, customers, and suppliers; properly vetting an organization’s potential participation in joint venture and trade association activity; and acquainting an organization’s frontline personnel with their ongoing antitrust compliance responsibilities. As this introductory primer demonstrates, the establishment and operation of an effective antitrust compliance program is an organizational imperative in an environment of increased enforcement both in the United States and abroad.