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ANTITRUST IN ACTION1
(Corplaw7 Commentaries)
by Barry J. Lipson
As demonstrated in the recent Corplaw7 Commentaries column "Local Company Sentenced for
Price Fixing -- What, No Antitrust Compliance Program?,"2 antitrust perpetrators (commonly known in
law enforcement circles as "perps" or "actors") are active, and the antitrust enforcers are "in action,"
actively pursuing such "actors" and "perps," at least in their guise of "price fixers."
Indeed, since this report, in the metals industry alone American Alloys Inc. of New Haven, West
Virginia has joined Elkem Metals Company in pleading guilty to price fixing, and SKW Metals & Alloys
Inc., together with Charles Zak, its former Executive Vice President, have been indicted for price fixing.
The United States Justice Department acknowledges that this investigation is now national in scope (and
maybe, as discussed in our earlier column, international), that it now covers an expanded product area, and
that the whistle blowing ex-employee was Gregory Magness, former President of SKW. It is, therefore,
clear that price fixers must not only be concerned about the "loyalty" at all levels of their own employees,
but also about the "reliability" at all levels of the employees of their co-conspirators.
This column will serve as an introduction to the antitrust laws, first concentrating on price fixing, and
then explaining the true breadth and scope of the antitrust laws, unequivocally showing that the antitrust
laws do, indeed, regulate business conduct far beyond just "classic" price fixing.

Future Corplaw7

Commentaries columns will provide a detailed explanation of how to establish an "effective" antitrust
compliance program, while complying and prospering.
Part 1 - PRICE FIXING, THE MOST CLASSIC PER SE VIOLATION
The antitrust laws are of continuing serious concern to all persons engaged in business, whether they be
engaged in small, medium or large businesses, whether they be corporations, partnerships, joint ventures or
sole proprietorships. The purposes and objectives of these laws are to preserve, protect, and facilitate the
operation of our free enterprise system; provide the "rules of the game" or necessary checks and balances
for the business community; and protect and benefit the consumer. Such laws have been enacted in almost

every state of the union, and in one form or another existed prior to the enactment in 1890 of the Sherman
Act, the initial federal antitrust law. Many foreign nations also have their own antitrust laws.
Violation of the federal antitrust laws is a felony and carries with it stiff criminal and civil penalties,
including imprisonment and large monetary fines, with individual criminal fines so far being as large as
$500 million under U.S. law ($1.45 Billion under EU law).3 Indeed, the Antitrust Sentencing Guidelines
mandate jail time for individuals who are criminally convicted under these laws. Conversely, if your clients
have been injured, as defined under these laws, they would be entitled to treble damages, plus costs and
attorneys' fees.
While all business transactions are subject to scrutiny under the antitrust laws, certain types of
transactions have already been "prejudged" to be per se illegal. One court has even found that, as sham
litigation has no redeeming value, when brought against competitors, it is a "per se" violation of the antitrust
laws.
Classic Per Se Violations
Traditionally, the types of transactions that are considered to be the "classic" per se violations, include
price fixing between competitors, price fixing between suppliers and re-sellers, bid rigging and
complimentary bidding, output and production limitations, customer and product allocations, market and
territorial divisions, tie-in and tying arrangements involving sufficient economic power, and commercial
group boycotts and concerted refusals to deal.
These classic per se violations can be divided into two main categories: a) horizontal and vertical
arrangements that manipulate pricing; and b) non-price horizontal arrangements that are anticompetitive in
nature. More specifically, the classic per se violations include:
Price Fixing
As "price fixing" is the hardest of hardcore antitrust violations, two crucially important rules with regard
to pricing are: (1) "If it's broken don't fix it!!!"; and (2) "If its not broken don't fix it!!!" It is the job of
the marketplace to establish the price, and not: (a) the coordinated actions of competing suppliers
(horizontal price fixing); or (b) the voluntary or involuntary coordinated actions of a supplier with a reseller
or resellers (vertical price fixing).
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With regard to horizontal pricing activities, the most a competitor can lawfully do to legally influence
his competitors' pricing is to take independent pricing action and hope that his competitors learn about and
truly independently decide to take similar action. Inquiries to competitors to find out what they are going to
do or have done can prove fatal. Some people believe that the true art here is how to, without giving the
appearance of a conspiracy, indirectly release the news of a price increase so that competitors learn of it
promptly.
With regard to minimum vertical pricing activities, the most a supplier can practically do to influence
resale prices is to suggest to his reseller what price he hopes the resellers will resell at. Technically, under
the 1919 Colgate Doctrine, the supplier can also announce ahead of time that he will cut off any reseller
who does not resell at the suggested price. This, however, places the supplier's head in the guillotine, as to
do anything more, such as failing to cut the reseller off promptly, without warning, when he fails to charge
the supplier's suggested price, can deactivate the safety catch, with fatal consequences. Of what use are
unbroken prices to a broken, headless supplier? [Since the November 1997 U.S. Supreme Court ruling in
State Oil Co. v. Khan (522 U.S. 3 (1997)), maximum intra-brand vertical price fixing only may now be
evaluated under the Rule of Reason where factors such as competitive effect and business justification
may be considered.]
It is also important to keep in mind that the law makes no distinction between horizontal price fixing
agreements which raise prices, lower prices, keep prices the same, or adjust prices in accordance with some
"generally accepted" formula. Then too, agreements that indirectly affect price, such as an understanding
between competing suppliers to charge a 2% late payment penalty or eliminate a 1% early payment
discount, would also be included within the ambit of per se illegal price fixing.
Thus, the heedless wholesaler, retailer, supplier or competitor of today, who permits himself to be
jockeyed into a per se illegal price fixing scheme, may well find himself to be one of the "headless
horsemen" of tomorrow.
Part 2 - THE OTHER CLASSIC PER SE VIOLATIONS
The next classic per se illegal conduct to be discussed, bid rigging, like price fixing, is also a direct
manipulation of price. The remaining classic per se violations to be discussed fit into the category of nonprice horizontal arrangements that are anticompetitive in nature.
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Bid Rigging and Complimentary Bidding

The per se legal art of "ship rigging" is almost lost. Regretfully, both Republican and Democratic
administrations keep demonstrating that the per se illegal hardcore area of "bid rigging" is very much alive,
and that when the government sets its sails to explore, in depth, the waters of any industry in which bidding
is a prominent method of allocating work, it is likely to haul in large catches of sharks and bid riggers. In
any such haul, the government nets may snare, and send to the holding tanks for up to three years,
competitors who have agreed upon who will win a particular bid, competitors who have agreed to bid high,
competitors who have agreed not to bid, competitors who have agreed to bidding formulas or patterns, and
gregarious industry members who have placed a "complimentary" or "courtesy" bid to help out a friend.
These "good ole boys" and "soul mates," soon to be cell mates, never expected to get caught, for they
"knew" their good buddies would clam up and stonewall. They were heedless of the fact that the Feds
delight in shipping expeditionary forces to rich, barely tapped, hardcore waters, to scoop up likely
specimens for "steaming" before the Grand Jury. Under this type of pressure, it has been found that good
ole boys, to protect their skin, hide, shell or whatever, are likely to open up wide. Once this happens, the
dam bursts, and fines, jail time, suits for treble damages, and debarment from public work follows.
Rather stormy sailing for former pillars of the community who, according to their "justifications" at
their sentencing hearings, were only doing "what everybody else does" and what has "always been done."
They certainly never expected to be hung from the yardarm with their own riggings.
Output and Production Limitations
According to the "Laws of Supply and Demand" the smaller the supply of an item the greater the
demand. If the competitors in an industry agree to limit their production, theoretically, they should be able
to drive prices up and reap a greater reward for a lesser effort. Under the "Laws of Sherman and Detention,"
if the members of an industry violate a classic hardcore Sherman Act prohibition, they can be detained in a
Federal penitentiary for up to three years.
The United States Supreme Court in NCAA v. Board of Regents of the University of Oklahoma, 468
U.S. 875 (1984), confirmed that concerted manipulations of supply and demand through output limitations
were, like price fixing, such classic hardcore violations of the antitrust laws.
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Customer and Product Allocations; and Market and Territorial Divisions

On a hot day in Dry Gulch, two competing salespersons meet accidentally at the local watering hole and
start commiserating over the vast number of sales calls their "half vast" employers require them to make;
and on how, no matter how hard they try, they both seem to seek out the same meager volume of orders
from the frugal Dry Gulchers.
After the third dip into the well, a light goes on and they decide to eliminate duplicitous efforts by each
visiting only half the customers or potential customers in the Dry Gulch sales area, Bert working the
territory to the East of downtown Dry Gulch and Ernie to the West.
This may be a good Sesame Street solution to a mathematical or cooperation problem, but, partner, in
real life, in the real marketplace; it constitutes a per se illegal customer allocation and territorial division.
Under the antitrust laws, agreements or understandings with competitors to allocate customers or products,
or divide markets or territories, are considered to be classic hardcore antitrust violations. Such arrangements
have taken the form of understandings to refrain from "poaching" each other's customers, to "back off" from
certain markets, to produce different grades or models of products, to "concentrate efforts" in different
territories, to concentrate on different types of customers, etc. In the marketplace, as in the Old West,
individualism and not collectivism is "the law."
Group Boycotts and Concerted Refusals to Deal
You arrive at your place of business one morning to find a group of angry citizens picketing your
entrance, imploring your customers to buy elsewhere until you stop dealing in Arctic Seal skins. This
group boycott or concerted refusal to deal would normally not be a violation of the antitrust laws unless, for
example, you can establish that it had been instigated by one or more of your competitors, suppliers and/or
resale customers.
Classic hardcore group boycotts that are condemned as per se violations of the antitrust laws have been
found to include horizontal combinations of competitors to exclude one or more direct competitors; vertical
combinations of buyers and sellers designed to exclude one or more competitors of some member of the
boycotting group; and coercive commercial combinations aimed at influencing the trade practices of the
boycott victim or victims.
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Thus, a group boycott, or collective or concerted refusal to deal, is just as illegal where one commercial
entity induces another not to deal with a third commercial entity, or where two or more commercial entities
agree to "independently" refuse to deal with a third party. Remember, not even good motives or laudable
objects, such as curbing "style piracy," redeem such collective refusals to deal. See Fashion Originators v.
FTC, 312 U.S. 457 (1941).
Tie-Ins and Tying Arrangements
It is normally per se illegal under the antitrust laws for a seller to insist that its purchasers buy
something they really do not want in order to obtain something else they really do want. This is called a
"tie-in" or tying arrangement, and the "tied" products may be tangible (e.g., gadgets or gasoline) and/or
intangible (e.g., licenses or leases).
However, whether or not any particular transaction is a per se illegal tie-in, or an unreasonable tying
arrangement and thus an illegal restraint of trade, depends on the specific facts of that transaction.
Therefore, before the determination is made to engage or not to engage in a transaction which appears to
have tying elements, legal counsel experienced in antitrust matters should be consulted. Indeed, even if the
tie-in may not be found to be per se illegal under the antitrust laws, if the jury (or judge) believes that
there is a 51% probability that it unreasonably restrains trade, it would still be illegal as a violation of the
antitrust laws.
Part 3 - ADVICE FOR POTENTIAL DEFENDANTS AND PLAINTIFFS
Other Agreements in Restraint of Trade
The Sherman Act does not specifically list by "brand name" the particular types of business practices
prohibited as per se illegal. Instead, this Act "generically" prohibits every contract, combination and
conspiracy "in restraint of trade." It has been the Courts that have applied "brand names" such as "price
fixing" or "bid rigging" to those business practices that have to date been "proved to be predominantly
anticompetitive," and thus "conclusively" presumed "to be unreasonable and therefore illegal without
elaborate inquiry as to the precise harm they have caused or the business excuse for their use" (see
Northwest Wholesale Stationers v. Pacific Stationery & Printing Co., 105 S. Ct. 2613 (1985); and Northern
Pacific Railway v. United States, 356 U.S. 1, 5 (1958)). To paraphrase Justice Steven, based on his
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footnote 34 in the U.S. Supreme Court case of Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2,
21 (1984):
Of course, the Sherman Act does not prohibit any conduct by name. The legality of any
conduct depends on its competitive consequences, not what or whether it has been labeled. If
the competitive consequences of such an arrangement are those to which the per se rule is
addressed, then it should be condemned irrespective of its label or lack of label.
Accordingly, any type of business practice can be held to be per se illegal if it can be "proved to be
predominantly anticompetitive;" and even if this is not done, any specific transaction, or course of conduct,
can be found to be illegal under the antitrust laws, if after a trial, where the economic factors were
examined, it is found that there is a 51% probability that it unreasonably restrained or suppressed
competition, as already pointed out in tie-ins, above.
The Bottom Line for Potential Defendants
A company must not be beguiled into abandoning its antitrust compliance program, or not adopting
such a program, on the grounds that antitrust has joined the Dodo and the Dinosaur. The truth of the matter
is that both Republican and Democratic Administrations pride themselves in convicting and sending to jail
more hardcore antitrust violators than the prior administration. Then too, the private treble damage plaintiff
and class action plaintiffs must always be contended with, regardless of the prosecutorial policies that are
being followed by the then current administration.
Therefore, if the government calls; if your client is sued or threatened under the antitrust or trade
regulation laws; if he suspects he may be open to such a suit; or if an antitrust counterclaim is asserted in a
suit brought by him, this should always be taken seriously, and experienced antitrust counsel obtained. It
must be remembered that the trebling of damages is mandatory under the antitrust laws, class action suits
are sought after in this area, and such suits can always lead to government prosecutions and/or a string of
"me too" civil suits.
The Bottom Line for Potential Plaintiffs
If your business client has been injured in his business in any of the ways described above, or if you or
he believe his competitors, his suppliers or his customers are or may be scheming against his business
interests, you owe it to him, his employees and his partners or shareholders, to review the matter with legal
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counsel experienced in antitrust law, and not dismiss it as a hopeless cause. Indeed, many of these matters
can be favorably resolved without even the necessity of actually going through an extended trial, if proper
advice is obtained in the first place and appropriate action taken thereafter.
Remember, it was never intended that the antitrust laws would be enforced solely by the Federal
government. The mandatory trebling of damages and availability of class actions were purposely included
to encourage private enforcement also. Indeed, the antitrust laws have always predominantly been enforced
by private injunctive, treble damages and class action suits.
A word to the wise . . .
To avoid these dire consequences, the client's personnel must be educated to avoid the obvious antitrust
pitfalls, and to consult with antitrust counsel whenever they have a doubt as to the applicability of the
antitrust laws, when they have questions about the legality of certain conduct, when there is some concern
as to the legitimate business purpose of a proposed transaction, or when they suspect that there may be an
antitrust problem.
Indeed, it is apparent that at least one individual who has served hard time for price fixing and bid
rigging, wishes he had been so educated. While still in prison, he wrote to the members of the trade
association of which he had been executive director, advising that:
As you know, I am at Elgin Air Force Base Federal Prison Camp. . . . There are no bars or
fences but they take a head count about every four hours. Very few have ever walked out of
here. If they try and get caught, they are shipped to a maximum security prison. And, they
are caught. . . . I would recommend that each of you study the Sherman Act. There are many
ways we might be outside the law and not realize that we are in danger." Emphasis added.
This incarcerated felon further advised his former colleagues that he planned to arrange an antitrust seminar
for them as soon as he was released. There should be little doubt that such a seminar, arranged by a former
antitrust inmate, would provide even a much greater "compliance incentive" than any previous seminars, for
he provides the living proof that you can get caught.
But of still greater importance is the implementation of an all-inclusive, ongoing and effective antitrust
compliance program, which is the only practical and workable way to afford meaningful protection from
antitrust attack, and is very much in a client's best interests.
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There, then, is Antitrust in Action!!!

Future Corplaw7 Commentaries will provide a detailed explanation of how to establish an "effective"
antitrust compliance program, while both complying and prospering. Please address your comments,
questions and suggestions for future Corplaw7 Commentaries Columns on marketing and business law, and
other legal subjects to Barry J. Lipson, Esquire, at bjlipson@gmail.com.
Copyright8 1996-2011 by Barry J. Lipson.
1

Published in 3 parts in the Pittsburgh Legal Journal issues of May 7, 14 and 21, 1996.
122 Pittsburgh Legal Journal, March 7, 1996, p.1.
3
F. Hoffmann-La Roche Ltd (US); Intel (EU).
2

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