Antitrust Law

Be careful what you say.

Law was specifically created to influence our behavior. The whole idea is that there is a code of conduct to be followed to protect the greater good, and if it is violated, a penalty may be imposed on the offender. Antitrust laws are a perfect example of this, and are set up to prevent big companies from using their power to hurt or take advantage of consumers, retailers, and smaller companies.

To be effective, laws must be clear and readily understood. The trouble with antitrust law is that as businesses develop new ways to take advantage of their market power, it becomes increasingly difficult to know what is legal and what is illegal. Almost by definition, antitrust laws are a little murky. Because of the confusion surrounding antitrust law, few people know if their business practices are unfair or not.

Antitrust recently became a hot topic in the computer industry when the Department of Justice went after both Microsoft and Intel for alleged illegal business practices. But does antitrust exist in the skateboard industry? With the skateboard-product market heating up, especially in the shoe category, talk of antitrust business practices is creeping into our little world.

Anti-competitive business practices can pop up anytime someone attempts to affect competition in a particular market. Dealers often accuse suppliers of antitrust practices when the supplier refuses to sell to the dealer. Exclusivity plays a major role in a company’s marketing and distribution decisions, and the law does respect the importance of product image – therefore allowing a company to independently decide with whom they will deal, so long as that decision is not made to further an unfair trade practice. What constitutes an unfair business practice, however, can be viewed very subjectively. Some retailers resent being denied, and see the rejection as an antitrust violation. In technical terms, the claim can be premised on the refusal to sell as an attempt to limit sales and thus control prices, and/or in furtherance, a price-fixing scheme.

It is not easy to win an antitrust suit: the plaintiff must provide evidence showing that the defendants conspired to achieve an unlawful objective, such as price fixing.

In addition to being accused of refusing to sell, defendants are also usually charged with limiting distribution to drive up the price of their product. This is called a vertical trust. Most companies, for various reasons, do not want their goods in five stores within a block of each other, so they limit their distribution. The effect of limited distribution is what the courts look to in evaluating whether or not there is an antitrust violation. For the courts to establish the existence of an antitrust violation, there must first be an agreement between two or more parties. This assumes that the agreement does not contain a price-fixing component – any agreement that fixes a price is clearly illegal. Second, the effect on the market of the restricted intra-brand competition has to be evaluated. Third, the competition in the market must be adversely impacted. In most circumstances, vertical limitations are antitrust violations only when the manufacturer has such a large market share that restriction agreements harm competition. When there are several dominant companies, as in skateboarding, chances are that none have the market dominance courts deem necessary for an antitrust charge.

Price-fixing agreements are clear violations of antitrust laws. What isn’t always clear is the distinction between a manufacturer’s suggested retail price and illegal price fixing. The courts have said that the mere suggestion by a manufacturer of a retail price is not illegal in and of itself. The courts went even further in stating that a manufacturer can unilaterally refuse to sell to a retailer who fails to observe the suggested price. But, it is a violation of the law if that manufacturer refuses to sell too a discount retailer because of an agreement the manufacturer has with another dealer to maintain retail prices.

There are other types of antitrust violations that are not directly related to a product’s price. A tying arrangement is an agreement by a manufacturer to sell one product on the condition that the buyer also purchases a different (or tied) product, or an agreement that precludes the buyer from purchasing that product from another supplier. For example, a company that has a popular product, such as specific board or shoe, and refuses to sell it to a retailer unless the retailer also purchases another specific product would be in direct violation of antitrust laws.

This is not to say that a manufacturer who uses strong persuasion or encouragement to entice the retailer to buy their full line is guilty of violating antitrust laws. Obviously, manufacturers and distributors want their retailers to support and display their lines as best as possible. The law is broken only when persuasion becomes coercion and the supplier has the court-required market power over the tying product.

So who can sue, and for what amount? Both the federal and state governments can file antitrust actions, and criminal and civil penalties can be assessed against violators. The government can also move to have an injunction imposed on the violator. An injunction is a court order to cease an illegal practice.

Private people, if they have been harmed by antitrust violations, can also sue. If successful, they can receive three times the amount of their harm plus reasonable attorneys’ fees. If the antitrust violation threatens future harm, you can receive injunctive relief. Proving antitrust violations can be difficult. Usually statistical evidence, market-share data, and economic analyses are required. Such analyses often cost tens of thousands of dollars, not to mention attorney’s fees. Furthermore, with most skateboard companies still privately owned, fewer statistics are available than for most publicly traded corporations.

This is not to say that the skate industry should turn a blind eye to the world of antitrust. Antitrust litigation is growing, especially as a business strategy. And before you know it, the skateboard industry may find itself behaving like other big businesses. The last thing anyone wants is to be sued for an antitrust violation and caught up in litigation. So a proactive approach to avoiding the specter of antitrust may be worth the effort.

A few things you can do to avoid antitrust violations are being conscious of the words you use so they cannot be misconstrued when discussing exclusivity with dealers, most notably during conversations regarding prices; avoid any language suggesting that the sale of one product is contingent upon the buyer purchasing another; and recognize that two competing businesses agreeing to charge a uniform price for a specific product, no matter what the motive, is illegal. It’s also a good idea to develop a distribution plan based on valid and legal business decisions. This can be used to defend your decision to exclude a buyer.

Be aware that there are other types of antitrust violations not discussed here, most notably mergers and acquisitions, and other unfair pricing schemes. For more information on these and other antitrust issues, try a search on the World Wide Web, or consult an attorney specializing in antitrust law.

Matthew Miller is an attorney-at-law in Solana Beach, California. He can be reached at: (619) 259-6969.