Supreme Court Alters Antitrust Law

Aug. 14, 2007
Over the last four months, the Supreme Court handed down a number of rulings in the antitrust area that could have a major impact on American industry,

Over the last four months, the Supreme Court handed down a number of rulings in the antitrust area that could have a major impact on American industry, including transportation. These decisions were issued about the same time the Surface Transportation Board (STB) ordered the abolition of the immunity from the antitrust laws long enjoyed by motor carriers. That immunity had permitted truckers to agree jointly on rate changes (although no carrier was obligated to adhere to the collectively set rates). The STB recently changed the effective date of its ruling to January 1, 2008.

So, how will these Supreme Court rulings impact American industry and the provision of transportation services?

One of the Supreme Court antitrust decisions greatly affects what it takes to get an antitrust case started. Most antitrust actions are private suits for damages. They usually involve allegations of price fixing or other types of collective activity that are what economists call "cartel behavior." This is when businesses that are supposed to compete with each other instead agree to fix a price, not compete in the same market, or divide up customers (such as carriers agreeing who will serve which shippers).

The key to these cartel antitrust cases is that there must be an agreement for a violation to occur. Proving that an agreement had been made can be difficult. Obviously, if the competitors meet in a room and decide on a precise price, then a violation has occurred. But the antitrust laws recognize that agreements could also occur in less blatant ways.

The antitrust laws also recognize that just because everyone charged the same price it didn't mean there had been a price fixing agreement. Public market knowledge may indicate to a business person what prices others were charging, and the business person may simply decide to follow along. No agreement; no violation.

A major problem for defendants was that often an antitrust suit would be filed alleging collusion but offering practically no facts as to how the collusion took place. The hope was that in the course of lengthy and expensive discovery, evidence would turn up showing an agreement. This forced many defendants to settle because of the legal expense and the possibility of a high damage judgment. (Under the antitrust laws, all judgments are automatically tripled and the plaintiff may recover attorney's fees—in other words—a lot of money can be at stake.)

The Supreme Court decision was directed at this abuse of the antitrust laws. The Court said that a plaintiff could not simply allege an antitrust violation. Instead, when a case is first instituted, the plaintiff also had to allege facts to support the concept of an agreement—such as an agreement to fix prices. Simply saying, "Prices are the same, so there must have been collusion," will no longer be enough for an antitrust action to go forward.

A Supreme Court decision issued in June also changed another long-standing antitrust concept. Traditionally, price fixing could occur in two ways: Horizontal price fixing (e.g. two trucking companies that serve the same city pairs agreeing to charge the same price) and vertical price fixing (e.g. a computer manufacturer telling its dealers what minimum price the dealer had to charge its customers). Both types of price fixing were considered "per se" violations. That is, wrong on their face. No amount of evidence about any benefits the price fixing arrangement might produce could be presented in court.

Also in June, the Supreme Court overturned nearly a century of court precedent and ruled that vertical price fixing was no longer a per se violation. The Court reasoned that the main area of competition was at the horizontal level with direct competitors battling it out (e.g. General Motors, Toyota, Honda, Ford, etc. competing against each other), not at the vertical level. In vertical business relationships, a principal (e.g. General Motors) supplies a dealer, franchisee, agent, etc., with a product or branded service. It is not expected that the dealer will compete with its principal, but instead will compete with the dealers of competing brands of the product or service. At this level, the principal and its dealers are more of a team than they are competitors.

Even prior to the Supreme Court's June ruling, the lower courts had been making it more difficult in particular circumstances for a plaintiff to prove a vertical price fixing violation. Now the Supreme Court has gone full circle and said vertical agreements are no longer to be considered per se antitrust violations.

One other Supreme Court decision in June basically held that if a regulatory agency had jurisdiction over a particular activity, antitrust lawsuits could not be used to circumscribe the regulatory agency. For instance, if an antitrust lawsuit could disrupt the actions of a regulatory agency, then the antitrust suit had to be dismissed. Consequently, actions by government agencies with regulatory powers over transportation such as the STB, Federal Maritime Commission or Department of Transportation may mean that the antitrust would not apply to particular activity.

The Supreme Court rulings signify major changes in the application of the antitrust laws. As the lower courts apply these rulings to particular situations, they could have a significant impact on all aspects of American industry—including logistics.

Mr. Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger LLP in Washington, DC, where he concentrates in transportation matters. Mr. Calderwood can be reached at [email protected]. This column is designed to provide information of general interest. It cannot substitute for in-depth legal analysis of particular problems. Readers are urged to seek counsel concerning individual situations.

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