Antitrust Enforcement

Introduction

The Attorney General of the State of New York, through his Antitrust Bureau, enforces both State and federal antitrust laws.

Antitrust laws have been called the "Bill of Rights" and "Magna Carta" of the American system of free enterprise.  The vigorous enforcement of antitrust laws assures businesses the ability to compete in an open marketplace and provides consumers with goods and services of higher quality at lower prices.

The antitrust laws seek to ensure that industry is competitive, with a number of manufacturers or distributors of a product or service, all striving to attract customers.  The nature of our free market economy requires competing businesses to lower their prices and improve quality to attract customers.  In order to earn a profit, businesses must seek to hold down their costs.  Competition stimulates firms to run their businesses more efficiently and enables U.S. firms to compete in a global economy.

Experience demonstrates that when competition is restricted, prices are likely to increase and quality is likely to suffer.  If a business does not have competition, it has little incentive to improve its quality, lower its prices, or become more efficient.  If there is only one seller in the market it may charge higher prices without fearing competition.

The antitrust laws are aimed at protecting consumers' purchasing power and saving jobs and businesses, all at the same time.  How? Businesses may believe that by restricting competition among themselves, they will earn higher short-term profits.  Of course, this hurts consumers by driving up prices; but in addition, it usually proves disastrous to the businesses themselves.  Vigorous competitors from another state, region or country eventually pierce the market and take business away from the local seller, who has become inefficient and weak due to lack of competition.  One long-term effect of restricted competition is business failure and a loss of local jobs.

Competition has other benefits as well.  It serves as a check on economic power and creates opportunities for individuals to enter the marketplace and run their own businesses.  It creates jobs and provides people with a choice of employer and work place.  It reduces the need for governmental interference through the over-regulation of business.  A free market for goods and services is an essential element of the personal freedom enjoyed in this country.

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The Antitrust Laws

History and Scope of Coverage

There are both federal and state antitrust laws.  The federal antitrust laws cover illegal activities affecting commerce among the states.  That means activities which are in the "flow" of trade across state lines or which affect this trade.  New York's antitrust law covers interstate activities when they have an impact in New York, as well as illegal activities of a local character.

Federal Antitrust Laws

The Sherman Act, enacted in 1890, prohibits all agreements and conspiracies in restraint of interstate trade and commerce.  These forbidden restraints include such practices as price fixing, market allocations, boycotts, bid rigging, and tying arrangements.  (Examples of these practices are given below.)  The Act also prohibits monopolizing or attempts to monopolize any part of interstate commerce.  Courts have the power to stop these practices, to restore matters to the way they were, to order refunds of gains illegally obtained, and to award damages of three times the amount of the actual dollar injury suffered ("treble damages"). Violators can also be held liable for criminal penalties of up to $100 million for corporations and up to $1 million and 10 years imprisonment for individuals.

The Clayton Act prohibits mergers, certain exclusive dealing arrangements, and price discrimination, which may substantially reduce competition or create a monopoly.   The Hart-Scott-Rodino Antitrust Improvements Act of 1976 granted the Attorney General of each state broad new powers to represent state residents in federal antitrust lawsuits.  The Attorney General may sue as the representative of consumers in New York to recover treble damages for money they lost due to a violation of the Sherman Act.  By using this procedure, the Attorney General can join - and has joined - together in one lawsuit the claims of many citizens, who could not afford to bring their own individual actions, each for relatively small amounts of money.

The Federal Trade Commission Act prohibits "unfair methods of competition" and "unfair or deceptive acts or practices".  The Act provides the Federal Trade Commission with powers to enforce the Sherman and Clayton antitrust provisions and to act as a consumer protection agency, with powers to prohibit practices not dealt with in the antitrust laws.

New York's Antitrust Law

New York's antitrust law, sections 340-347 of New York's General Business Law, is known as the Donnelly Act and was enacted in 1899.  Through amendment and interpretation the Donnelly Act has come to follow closely the federal Sherman Act, although it differs in some key respects.

The Act prohibits price fixing, bid rigging, territorial and customer allocations, monopolization, boycotts, and tying arrangements, among other practices.   The Act permits the Attorney General to bring an action for civil fines up to $1,000,000 for corporations and $100,000 for individuals.  Private parties may also bring lawsuits to enjoin these practices and obtain treble damages. Violation of the Donnelly Act is also a felony, punishable by a criminal fine of up to $1,000,000 for corporations and up to $100,000 and 4 years imprisonment for individuals.

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Examples of Antitrust Violations

The examples that follow illustrate common ways in which businesses or individuals may commit serious violations of the antitrust laws.  There are others, too numerous to explore in this discussion.  The chosen examples are hypothetical and do not refer to actual cases or investigations.

Price Fixing
The antitrust violation that may cause the most serious injury to consumers is price fixing.  When manufacturers or distributors agree to fix the price of a product or service, prices paid by consumers are inflated.  Price fixing is illegal, whether at wholesale or retail, and whether agreed to among buyers or sellers.  Agreements among competitors that fix maximum or minimum prices, such as minimum fee schedules set by associations of professionals, are likewise illegal.

Example
Companies X, Y, and Z manufacture television sets.  One night at a social gathering, the Presidents of X, Y, and Z chat about prices and agree that they will each establish a minimum price for their sets. Companies X, Y, and Z and their presidents, because of their agreement, are all involved in price fixing, even if they sell their television sets at various prices above the minimum agreed price.

Bid Rigging
The State, cities, towns, villages, school districts, hospitals and other public institutions in New York purchase billions of dollars of goods and services yearly under competitive bidding procedures.  Agreements among potential bidders about which companies will bid for certain contracts, or what prices individual bidders will offer, or which areas particular bidders will bid in, constitute bid rigging.  It is also unlawful for a public official to tailor contract specifications to the product of a particular company or otherwise attempt to predetermine which company will win a bid.  Bid rigging is a form of price fixing.

Example 1
Five companies that sell fruit usually bid against each other to provide five suburban school districts with fresh fruit for student lunches.  At a trade association dinner, executives of the five companies agree to bid in such a way that each company will win the bid for a single school district.  This agreement, whether it sets the bid prices that are submitted or provides that only certain companies will bid for a particular contract, constitutes bid rigging.
Example 2
A purchasing agent, in collusion with a favored supplier, develops a set of restrictive specifications for the purchase of all the janitorial supplies needed by the school district.  The specifications exclude all but the current supplier. The bids are let and the district receives a single bid.  The primary reason many competitors did not bid is that the bid specifications were so restrictive as to discourage participation. The supplier who wrote the specifications submits an apparent low bid for most of the products, and of course meets all specifications.  This subversion of the bidding process is an unreasonable restraint of trade.

Market Allocation
Market allocation includes any agreement between competitors that they will not compete with respect to specified customers, geographical territories or products.  These agreements are illegal at all levels of distribution, whether among manufacturers, wholesalers or retailers.

Example
Corporation A and Corporation B manufacture video disc players, video cassette recorders and stereo equipment. The companies agree that in New York, Corporation A will only distribute video disc players and Corporation B only video cassette recorders. They also agree that Corporation A will distribute its stereo equipment only to stores north of Ulster County and Corporation B only to stores in Ulster and south. The companies have illegally allocated markets by product and geographical territory.

Resale Price Maintenance
Resale price maintenance is another form of price fixing.  It is often called "vertical" price fixing.  It occurs when a manufacturer or distributor agrees with its customer, for example a retailer, that the retailer must resell the item purchased at or above a specific price.  Resale price maintenance violates New York law.

Example
XYZ Corporation makes gourmet ice cream and sells it to retail food stores.  XYZ Corporation wants its ice cream to command a high price, and the company stamps a suggested retail price on each container. XYZ’s suggesting a retail price is not itself unlawful.

Store A is a retailer that buys ice cream from XYZ Corporation.  To attract customers, Store A advertises a special on XYZ’s ice cream at a price well below the suggested retail price.  XYZ Corporation’s sales manager tells Store A’s general manager that Store A must agree to sell the ice cream at not less than XYZ Corporation’s suggested retail price, and says that, otherwise, XYZ Corporation will discontinue all sales of its ice cream to Store A.  If Store A agrees with XYZ Corporation’s demands, XYZ Corporation and Store A are engaged in resale price maintenance.   This agreement violates New York law.

Group Boycotts
An illegal boycott exists when several companies join in efforts to keep a particular market or particular customers from receiving services.

Example
New York state enacts new reimbursement rates for certain drugs, which are part of the prescription drug plan that the state offers to all its government employees.  At a trade association meeting, pharmacists voice objections to the new reimbursement rates, which they believe are too low, and determine that they collectively will not fill the prescriptions of these particular drugs. This collective action by the pharmacists is an illegal boycott that victimizes both the state and its employees.

Tying Arrangements
An illegal tie-in occurs when a seller with market power over one product (the "tying product") will only sell it to buyers who agree to buy another one of the seller’s products (the "tied product").

Example
Wonderdrug Co. has developed a unique revolutionary new drug that can cure many people in mental institutions and allow them to return to their homes.  In order to obtain this drug, Wonderdrug requires a patient to also obtain a very expensive, regularly scheduled blood test that Wonderdrug Co. offers. In fact, the blood test could be performed by any company or hospital with no impact on the drug's effectiveness. This tying arrangement is unlawful, and would not be allowed under antitrust law.

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Antitrust Enforcement Agencies

The antitrust laws are enforced by the Attorney General of New York State, the United States Department of Justice, the Federal Trade Commission and by private citizens and businesses. Their respective roles in antitrust enforcement are briefly described below.

Office of the Attorney General of the State of New York

New York's Attorney General investigates and prosecutes violations of the State's antitrust law.  The Attorney General has exclusive power to sue for civil fines and may bring state criminal prosecutions. The Attorney General, as well as the federal authorities, can prosecute interstate activity affecting New York.

The Attorney General represents not only New York consumers but also New York State, and its political units, such as cities, villages, towns, public schools and hospitals in lawsuits under the federal and state antitrust laws.  The Hart-Scott-Rodino Act gives state attorneys general the paramount role of suing on behalf of consumers in their states to secure three times the amount of damage suffered as a result of violations of the federal Sherman Act.  If you have any questions or complaints, call, write, or visit our office.  The Antitrust Bureau's address and telephone number is:

Attorney General
120 Broadway, Suite 26C
New York, New York 10271-0332
(212) 416-8262

Antitrust Division of the United States Department of Justice

The Antitrust Division has statutory authority to enforce the Sherman and Clayton Acts by civil and criminal proceedings.  The Antitrust Division will also issue "business review letters" to companies seeking advice whether it believes a proposed business practice is legal under the federal antitrust laws. The address and phone number of the regional office of the Antitrust Division having jurisdiction over New York are:

Department of Justice, Antitrust Division, New York Office
26 Federal Plaza, Rm 3630
New York, NY 10278
212-335-8000

Federal Trade Commission

The Federal Trade Commission may investigate and bring civil suit against businesses that violate federal antitrust and consumer protection laws.  The Commission may also issue orders to stop certain business practices, after an administrative hearing.

The Commission may also issue rules that define business practices that violate the Federal Trade Commission Act.  It can sue for civil penalties and damages for violations of these trade regulation rules.  The address and phone number of the regional office of the Federal Trade Commission in New York are:

Federal Trade Commission
1 Bowling Green
New York, NY 10004
Telephone: (212) 607-2829

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Private Litigation

Under both state and federal antitrust laws, private parties may sue to stop illegal behavior and collect treble damages for injury suffered as a result of antitrust violations.  New York's Attorney General also can sue on behalf of New York's consumers when private citizens do not have the resources to bring their own separate actions or their individual claims are too small to justify separate lawsuits.

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The Public's Role in Antitrust Enforcement

The public has a vital role to play in antitrust enforcement. This discussion is designed to acquaint you with the state and federal statutes and some of the most common and serious types of antitrust violations.  Many of the most important antitrust investigations and prosecutions have begun as a result of information supplied by members of the public.

Business people, purchasing agents, government employees and consumers with any information about behavior which is believed to violate the antitrust laws should immediately contact the Attorney General's office at the address or number listed above. The identity of a confidential informant is protected to the fullest extent allowed by law.

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