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Antitrust and Small Businesses

written by: R. Elizabeth C. Kitchen•edited by: Michele McDonough•updated: 11/23/2009

This article will define and explain antitrust and how it relates to small businesses.

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    What is an Antitrust?

    An antitrust, as it relates to small business, is an act opposing or regulating trusts, cartels, monopolies, or other similar organizations. This regulation or opposition is set forth to prevent unfair competition. Antitrust laws outlaw monopolies in the market place to promote free competition.

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    Avoiding Antitrust Trouble

    The first thing a small business can do to avoid antitrust trouble is understand their industry. If they do not understand their industry, they risk misinterpreting the laws, possibly leading to breaking an antitrust law. Part of avoiding antitrust trouble involves the potential to spot possible antitrust issues and adopting preventative measures to avoid antitrust measures. If a small business owner needs help understanding their industry, identifying possible antitrust issues, and developing preventative measures, they can consult outside help that is knowledgeable about antitrust laws and rules.

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    Legal Counsel

    Small Business Antitrust - sxc.hu - creationc - lawyer As a rule, all proven antitrust damages are multiplied by three. This results in very expensive violations. In cases where small business owners are not knowledgeable about antitrust laws, obtaining legal counsel can be very beneficial and can help them avoid costly violations. Antitrust issues that require extensive experience and analysis are often best suited for lawyers who know a lot about them. Such antitrust issues include pre-merger filings, monopolization allegations, and criminal investigations.

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    Antitrust Contracts

    Small Business Antitrust - sxc.hu - shho - contract All small business owners should regularly review contracts and sensitive documents. Such documents include agendas, marketing plans, and strategy papers for trade association meetings. Doing so will prevent the wrong messages from being sent.

    A prime example of a company not reviewing their documents is the Microsoft trial. Many email messages were sent and not viewed as humorous or inappropriate by Microsoft employees. If Microsoft has taught small business owners anything, they have taught them to never joke about violating rules and laws. A rule of thumb for small business owners is to never say or write anything that you would be too embarrassed to have printed on a national newspaper.

    To make sure that all files stay current, within antitrust laws, and appropriate, small business owners can develop a document retention plan. This plan will only work, however, if the staff is encouraged to follow it.

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    Read on to the next page for a summary of specific laws relating to antitrust.

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    Antitrust laws greatly affect small businesses and if small businesses violate any antitrust laws, they will suffer from major penalties. All small business owners should familiarize themselves with antitrust laws, specifically the Sherman Act and the Clayton Act.
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    Antitrust Laws and Amendments Affecting Small Businesses

    There are two core antitrust laws that can affect small businesses, as well as amendments to these laws. These include the Sherman Act, the Clayton Act, and the two amendments to the Clayton Act. Antitrust laws are in place to ensure that all businesses keep quality up and keep prices down. The main objective is to benefit consumers by protecting the competition process, ensuring that there are great incentives for businesses to work efficiently.

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    Sherman Act

    952313 gavel - sxc.hu - creationc In 1980, the Sherman Act was passed by Congress. This was the first antitrust law. This act outlaws every conspiracy, combination, or contract in restraint of trade, as well as any attempted monopolization, monopolization, combination to monopolize, or conspiracy to monopolize.

    It only prohibits the restraints that are unreasonable. An example of a violation of the Sherman Act would be plain arrangements between small businesses or individuals to divide markets, fix prices, or rig bids. Most violations of the Sherman Act are considered civil, but some are also considered criminal, such as intentionally rigging bids or fixing prices. Small business owners who violate this antitrust law could face up to one million dollars in criminal penalties and up to ten years in prison.

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    Clayton Act

    This antitrust law covers some of the specific practices not prohibited by the Sherman Act, such as interlocking directories and mergers. The Clayton Act also bans discriminatory services, allowances, and prices in dealings between small businesses, due to the 1936 Robinson-Patman Act amendment. In 1976, this antitrust law was again amended to include the Hart-Scott-Rodino Antitrust Improvements Act which requires businesses that are planning large acquisitions or mergers to notify the government in advance about their plans. Small businesses that practice discrimination will violate this antitrust law. For example, if a restaurant charges a specific race or gender more for their food, they are in violation of the Clayton Act.

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    State Antitrust Laws

    Most states also have their own antitrust laws in addition to the federal antitrust laws. The state statutes are enforced by private plaintiffs or by state attorney generals. Most state antitrust laws are based on federal antitrust laws and have similar penalties.

    On the next page, we'll examine some specific antitrust cases.

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    When a small business is trying to understand antitrust laws, they can look to old antitrust cases for examples. These antitrust cases will discuss the laws that were violated and how the violations were rectified. They often discuss the exact statutes that were violated, making it easy for small businesses to pinpoint exactly what they did wrong so that they can avoid it.
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    NAACP v. Claiborne Hardware (1982)

    Some small businesses violated the boycotts and refusal to trade antitrust laws. This boycott was held to ensure compliance by business and civic leaders with a long list of demands for racial justice and equality. In the end, some black consumers swore to withhold their patronage from small businesses who refused to comply and the court upheld the liability imposition because of the theory known as the common-law tort theory.

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    United States v. Griffith et al. (1948)

    204588 monopoly board game - sxc.hu - jpsdq This case is an excellent example of a violation of the Sherman Act. Four affiliated businesses having no competitors used monopoly power to prevent their competitors from being able to obtain adequate first or second run films to be able to operate efficiently and successfully. This case focused on four businesses that ran motion picture theaters. By creating a monopoly, these four businesses formed a conspiracy that violated statutes one and two of the Sherman Act. In the end, the four businesses that created the monopoly were found in violation and the courts sought to prevent this in the future by eliminating the monopoly created.

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    Associated Press, et al. v. United States (1945)

    This case focused on the fact that the Associated Press sought to form a monopoly, resulting in smaller businesses being unable to withstand the competition. In this case, three judges ruled that the Sherman Antitrust Act was violated. The Associated Press developed a contract with the Canadian Press Association in which both were obligated to provide news exclusively to each other, resulting in a monopoly.

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    Georgia v. Evans (1942)

    This case violated the standing antitrust law under the Sherman Act. This case was brought in front of the court when injury was caused by fixing prices and suppressing competition. This case is very similar to United States v. Cooper Corp.

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    United States v. Columbia Steel (1948)

    1225913 steel grid 2 - sxc.hu - nossirom In this antitrust case, Columbia Steel violated statutes one and two of the Sherman Act, and was found to be participating in vertical integration. The United States filed a four-million dollar suit against Columbia Steel because of their violation of antitrust laws. Columbia Steel was found to be attempting to create a monopoly concerning the sale and production of fabricated steel products within the consolidated market area.