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Monopoly and Antitrust Policy
(Part G)
by
Charles Lamson
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The Enforcement of Antitrust Law
With this brief history of the antitrust laws, we turn to antitrust enforcement. Initiating Antitrust Actions Two different administrative bodies have the responsibility for initiating actions on behalf of the U.S. government against individuals or companies thought to be in violation of the antitrust laws. These agencies are the Antitrust Division of the Justice Department and the FTC. In addition, private citizens can initiate antitrust actions. Government Actions: The Antitrust Division and the FTC The 1914 legislation that established the FTC, and the Wheeler-Lea Act that followed, gave the FTC broad powers to forbid "unfair and deceptive" conduct. The FTC is composed of five members appointed by the president and confirmed by the Senate for terms of 7 years. A large staff of lawyers and economists investigate and prosecute offenders. The FTC can issue cease-and-desist orders to offenders, but such orders carry no criminal or civil penalties for past damages or monetary fines. In essence, the FTC exists to prevent further unlawful action, and in practice most FTC proceedings end in formal agreements instead of cease and desist orders. FTC has also established a set of trade regulation rules that make clear what practices it deems unfair and subject to action. One such rule, for example, states that a service station that fails to display octane ratings clearly on gas pumps is guilty of an "unfair or deceptive act or practice." These rules simplify the process of adjudication by making the standards of conduct clear.  Along with the antitrust division of the Department of Justice, the FTC initiates actions against those who violate antitrust law. The power to impose penalties and remedies formally rests with the courts, but the antitrust division decides which cases to prosecute. All cases involving criminal complaints against individuals or companies originate in the antitrust division, but it is fairly small. Its resources are limited, and the vigor with which it pursues antitrust violators changes with the views of the president and the Attorney General. Private Actions Antitrust cases may also be brought to the courts by private citizens. Since 1914, private persons have been empowered to bring suits as long as they can clearly demonstrate a significant injury or threat of injury. Much like the old rule of reason, however, the law is vague about what constitutes a "significant injury or threat." Sanctions and Remedies The courts are empowered to impose a number of remedies if they find the antitrust law has been violated. Certain civil and criminal penalties can be exacted for past wrongs, and other measures can prevent future wrongs. Specifically, the courts can "(1) forbid the continuation of illegal acts, (2) force the defendants to dispose of the fruits of their wrong, and (3) restore competitive conditions": In fashioning effective relief, the courts have considerable discretion in their choice of remedy. Antitrust decrees have, for example, ordered defendants to dispose of subsidiary companies; to create a company with appropriate assets and personnel to compete effectively with defendant; to make patents, trademarks and trade secrets or know-how available to competitors at reasonable royalties or even without any royalties; to provide goods and services to all who wish to buy; to revise the terms on which defendant buys or sells; and to cancel, shorten or modify outstanding agreements with competitors, suppliers or customers.  Consent Decrees Between 75 percent and 80 percent of all government-initiated civil suits are settled with the signing of a consent decree. Consent decrees are formal agreements between the prosecuting government and the defendants that must be approved by the courts. Such decrees can be signed before, during, or after a trial. Because antitrust cases are long and expensive to litigate, both parties benefit if settlement comes early. A relatively recent case involving allegations of price-fixing by Ivy League colleges was settled before trial when eight of the nine schools involved signed a consent decree (Case & Fair, 2004). Consent decrees have encompassed a variety of agreements. A company may agree to give up a patent that is serving as a barrier to effective competition, for example, or it may agree to be broken up into separate competing companies. The most celebrated relatively recent consent decree involved Microsoft, which the Justice Department accused of using its dominance in operating system software to gain market power in other areas. (Virtually all IBM and IBM compatible personal computers use Microsoft DOS or Windows as their main operating system.) in July 1994, the Justice Department reached a tentative agreement with Microsoft and did not move to file a formal complaint. Under the consent decree, Microsoft agreed to give computer manufacturers more freedom to install software from other software companies. In 1997, Microsoft found itself charged with violating the terms of the consent decree and was back in court. In 2000, the company was found guilty of violating the antitrust laws and a judge ordered it split into two companies. But Microsoft appealed and the decision to split the company was replaced with a consent decree requiring Microsoft to behave more competitively, including a provision that computer makers would have the ability to sell competitors' software without fear of retaliation (Case & Fair, 2004). In 2011 the consent decree expired. Microsoft released this statement about the consent decree's expiration: Our experience has changed us and shaped how we view our responsibility to the industry. We are pleased to bring this matter to successful resolution, and we are excited to keep delivering great products and services for our partners and customers. (seattletimes.com, originally published May 11, 2011) Bill Gates, the tech visionary behind Microsoft's success, stepped down as chief executive in 2008 (bbc.com, March 13, 2020) "Since the antitrust suit they have become much more cautious and much less aggressive." Said Michael Cusumano, a professor at MIT Sloan School of Management, who wrote about Microsoft in the book "Staying Power." Criminal Actions In 1955 and again in 1974, the sanctions for violating the Sherman Act changed. The original act held that violations were misdemeanors and made no distinction between individuals and corporations. Today the penalties are considerably more severe: Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and on conviction thereof, shall be punished by a fine not exceeding one million dollars if a corporation, or, if any person, one hundred thousand dollars or by imprisonment not exceeding three years, or by both said punishments, and the discretion of the court.  The practice of the antitrust division has been to limit criminal proceedings to outrageous violations, where intent to violate is clear. In 1961, for example, seven prominent executives of major U.S. corporations that produced electrical equipment were found guilty of flagrantly violating well-established laws. They had secretly met and agreed to fix prices. All seven received 30-day jail sentences. Treble Damages Any person or private company that sustained injury or financial loss because of an antitrust violation can recover damages from the guilty party over and above any fines levied. The award made by the court must be three times the actual damages (treble damages): Any person injured in his business or by reason of anything forbidden in the antitrust laws. . . . shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorneys fee. This provision, of course, provides a powerful incentive for private parties to invoke the antitrust laws.  *CASE & FAIR, 2004, PRINCIPLES OF ECONOMICS, 7TH ED., PP. 273-275* end |
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