Avoid Antitrust Violations

Avoid Antitrust Violations

The word "antitrust" sounds ominous, but in fact simply refers to "competition." Antitrust laws are designed to ensure that competition between businesses is fair, and that consumers are not disadvantaged by unfair business practices.

Antitrust laws:

  • Prohibit the restriction of free trading and healthy competition among businesses
  • Prohibit a firm from dominating a market or from engaging in abusive practices that lead to a dominant position (predatory pricing, price gouging, refusing to deal, etc)
  • Ensure that mergers and acquisitions do not threaten the ability of other companies to compete fairly in the marketplace

If you own a small business the above may not seem like a concern, but it can be. If you work with a competitor to diminish free trade or control prices, you can be liable for fines and imprisonment – even if you are protected by a corporate veil. Let's take a look at how you can make sure you do not run afoul of antitrust legislation and commit antitrust violations.

Quick note: Communicating with competitors is natural; you may have similar issues, work with the same customers, use the same vendors, etc. Your communication cannot have a substantive effect on how you do business, though. The key is to avoid collaborating on pricing, the people you will sell products or provide services to, or to in some way collude in a way that disadvantages other businesses.

First let's look at the major legislation governing antitrust activities.

  • Sherman Act. The Sherman Act serves as the foundation for antitrust law. Any contract that restrains free trade can be considered to be illegal, including agreements to restrict pricing, restrict customers served, monopolize trade, etc. In essence the Sherman Act seeks to ensure customers can receive the best products or services at the lowest possible cost.
  • Clayton Act. The Clayton Act governs the punishment allowed when antitrust violations occur. Not only can violators be fined, but up to triple damages can also be awarded.
  • Federal Trade Commission Act. The Federal Trade Commission Act supplements the Sherman and Clayton Acts, also protecting consumers and businesses from unfair competition.

What is the bottom line? Violate antitrust laws and you could be fined and imprisoned.

How do you avoid violating antitrust laws?

  • Never discuss pricing or pricing issues with any competitor. If you attend a trade show, for example, and other competitors are discussing pricing, walk away immediately. You have nothing to gain and everything to lose.
  • Never discuss allocating customers or markets to competitors in exchange for receiving "protected" customers or territories. "Divide and conquer" can be a violation of antitrust laws.
  • Never require customers to only buy certain products solely from your business.
  • Never make a sale on the contingency that a customer will purchase a product from you.
  • Never charge different prices to customers who are in competition with each other; for example, do not charge Customer A higher prices than Customer B in an attempt to help Customer A be more competitive.
  • Never make claims about a competitor's products or services unless you can prove those claims.
  • Never participate in a trade organization that does not seek to benefit the entire industry; otherwise your participation in that organization may be considered a form of collusion.

Those are the basics; for more information, ask your attorney for guidance relative to your industry and your specific business. For example, if you employ outside salespersons, those individuals may need specific guidance to ensure they do not engage in practices that limit free trade.

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