Federal Antitrust laws
Congress has enacted a series of laws to limit anticompetitive behavior in business. These are called
(1) Sherman Act, (2) Clayton Act, (3) Federal Trade Commission Act, (4) Robinson-Patman Act
Federal antitrust laws include: (4 points)
This act, enacted in 1890, made certain restraints of trade and monopolistic acts illegal.
This act, enacted in 1914, regulates mergers and prohibits certain exclusive dealing arrangements.
Federal Trade Commission (FTC) Act
This act, enacted in 1914, prohibits unfair methods of competition.
This act, enacted in 1930, prohibits price discrimination.
(1) Criminal sanctions, (2) Civil penalties
What are two government actions that could be sought against violates of federal antitrust laws.
Section 4 of the Clayton Act provides that anyone injured in his or her business or property by the defendant's violation of any federal antitrust law (except the FTC Act) may bring a civil action and recover from the defendant treble damages plus reasonable costs and attorney's fees. These are refereed to as what?
This can be used against a defendant for an antitrust violation and may be used as prima facie evidence of liability in a private, civil treble-damages action.
Section 1 of the Sherman Act
This prohibits contracts, combinations, or conspiracies that cause unreasonable restraints of trade. It requires concerted activity between two or more parties.
Rule of reason or Per se rule
The courts apply one of the following two tests in determining the lawfulness of a restraint of trade.
Horizontal Restraints of Trade
These type of restraints of trade occur when two or more competitors at the same level of distribution enter into a contract, combination, or conspiracy to restrain trade.
Price fixing, division of markets, group boycotts, other horizontal agreements
List the different forms of Horizontal Restraints of Trade. (4 points)
In this horizontal restraint, competitors in the same line of business agree to set the price of the goods or services they sell. This is a per se restraint of trade violation.
Division of markets
In this horizontal restraint, competitors agree that each will serve only a designated portion of a market; also called market sharing. This is a per se restraint of trade violation.
In this horizontal restraint, competitors agree not to deal with others at another level of distribution (ex. customer, supplier). These are examined using the rule of reason.
Other horizontal agreements
In this horizontal restraint, besides price-fixing, division of markets, and group boycotts, are examined using the rule of reason.
Vertical Restraints of Trade
These type of restraints of trade occur when two or more parties at different levels of distribution enter into a contract, combination, or conspiracy to restrain trade.
Resale price maintenance and nonprice vertical restraints
Vertical Restraints of Trade include: (2 parts)
Minimum resale prices and maximum resale prices
Resale price maintenance could be either these two:
Minimum resale prices
This is a per se illegal restraint of trade violation.
Maximum resale prices
This lawfulness of this restraint of trade is examined using the rule of reason.
Nonprice vertical restraints
This vertical restraint of trade is examined using the rule of reason.
Resale price maintenance
This occurs when a party at one level of distribution (ex. manufacturer) requires a party at another level of distribution (ex. retailer) to sell a good or service at a designated price; also called vertical price fixing.
Unilateral refusal to deal, Conscious parallelism, and the Noerr doctrine.
Defenses to Section 1 of the Sherman Act include: (3 points)
Unilateral refusal to deal
In this defenses to Section 1 of the Sherman Act, a party may refuse to deal with another party. This does not violate Section 1 because there has been no concerted action.
This defenses to Section 1 of the Sherman Act, occurs when two or more firms act the same, but without concerted action; They reached their decisions independently.
The Noerr doctrine
In this defense to Section 1 of the Sherman Act, two or more parties may petition the executive, legislative, or judicial branches of government to enact laws or take other action.
Section 2 of the Sherman act
This act prohibits the act of monopolizing and attempts, combinations, and conspiracies to monopolize trade or commerce in a relevant market.
Define the relevant market, Monopoly power, Willful act of monopolization
The following elements must be shown to prove a violation of Section 2 of the Sherman Act
Relevant product or service market and relevant geographical market
What elements are needed to define the relevant market? (2 points)
Relevant product or service market
This market includes substitute products or services that are reasonably interchangeable with the defendant's products or services.
Relevant geographical market
This is the geographic area in which the defendant and its competitors sell the product or service.
The defendant must possess this in the relevant market to prove there is a monopoly.
Willful act of monopolizing
For an antitrust action to be sustained, the defendant must have engaged in this. Mere possession of a monopoly is not enough.
Section 2 of the Sherman act
Firms that attempt or conspire to monopolize a relevant market may be found liable under this act.
Innocent acquisition and natural monopoly
These are the defenses to monopolization. (2 points)
A monopoly may be acquired through superior shill, foresight, or industry. This is a defense to monopolization.
A monopoly may be thrust upon the defendant (ex. the only newspaper in a small town.)
Section 7 of the Clayton Act
This act prohibits acquisitions that may substantially lessen competition in any line of commerce in any section of the country.
Line of commerce, Section of the country, and Probability of a substantial lessening of competition.
What are the elements for proving a violation of section 7 of the Clayton Act? (3 points)
Line of Commerce
This is defined as the market that will be affected by a merger. It includes products or services that consumers use as substitutes for those produced or sold by the merging firms.
Section of the country
This is the geographic market that will be affected by a merger. It includes the area that will feel the direct and immediate impact of the merger.
Probability of a substantial lessening of competition
If the court determines that a merger would cause this, the merger may be prohibited. The statute deals with probabilities: Proof of the actual lessening of competition is not required.
Horizontal merger, Vertical merger, Market extension merger, and Conglomerate merger
What are the types of mergers? (4 points)
This type of merger is between two or more firms that compete in the same business and geographic market; it is a merger between competitors at the same level of distribution.
This type of merger is between firms at different levels of distribution that integrates the operations of a supplier and a customer.
Market extension mergers
This type of merger is between two firms in similar fields whose sales do not overlap.
This type of merger is of firms in totally unrelated businesses. They may be challenged under unfair advantage theory. This merger may not give the acquiring firm an unfair advantage over its competitors in finance, marketing, or expertise.
Failing company doctrine and small company doctrine
What are defense to Section 7 actions of the Clayton act?
Failing company doctrine
In this defense to section 7 of the Clayton act, a competitor may merge with a failing company if (1) there is no other reasonable alternative for the failing company, (2) no other purchaser is available, and (3) the assets of the failing company would completely disappear from the market if the anticompetitive merger were not allowed to go through.
Small company doctrine
In this defense to section 7 of the Clayton act, two or more small companies may merge if the merger allows them to compete more effectively with a large company.
The Hart-Scott-Rodino Antitrust Improvement
Act (HSR act) is a federal act that requires certain firms to notify the FTC and Justice Department in advance of a proposed merger. Unless the government challenges the proposed merger within 30 days, the merger may proceed. This is referred to as what?
Trying arrangements (Section 3 of the Clayton Act)
These occur when a seller refuses to sell a product (the tying product) to a customer uless the customer purchases a second product (the tied product).
Section 3 of the of the Clayton Act prohibits these arrangements involving sales and leases of goods.
Section 1 of the Sherman Act
This act prohibits Trying arrangements involving goods, services, intangible property, and real property.
Section 2 of the Clayton Act is commonly refereed to as What?
Robinson-Patman Act (AKA Section 2 of the Clayton Act)
This act prohibits price discrimination and discriminatory fees, payments, and services. The act applies only to products, not to services.
Direct price discrimination
This type of price discrimination is prohibited by Section 2(a) of the Clayton Act. It prohibits a seller from discriminating in price between two or more different purchasers of commodities of like grade and quality where the effect may be to substantially lessen competition.
Indirect price discrimination
Favorable credit terms, freight charges, and such are examples of this kind of price discrimination that violates the Robinson-Patman Act.
(1) Cost justification, (2) Changing conditions, (3) Meeting the competition
What are 3 defenses to price discrimination?
Differences in the cost of maintenance, sale, or delivery of a product to different purchasers can justify cost discrimination.
A seller is allowed to respond if this occurs in the market (ex. deterioration of perishable goods.)
Meeting the competition
Section 2(b) permits a seller to have a lower price in one market than in another market to meet the price of a competitor in the lower-priced market. This is referred to as what?
Section 5 of the Federal Trade Commission Act
This section of this act prohibits unfair methods of competition and unfair or deceptive acts or practices. It covers conduct that violates any provision of the Sherman Act or the Clayton Act, violates the "spirit" of those acts, fills the gaps of those acts, and causes substantial injury to competitors or consumers.
Statutory exemptions, implied exemptions, and state action exemption
What are the 3 exemptions from antitrust laws?
labor unions, agricultural cooperatives, export activities of the U.S. companies, insurance business regulated by states, and railroad, utility, shipping, and securities industries are expressly exempt from federal antitrust laws. The exemption is referred to as this.
The courts have held that certain industries, including professional baseball and airlines, are exempt from federal antitrust laws. The exemption is referred to as this.
State action exemption
Activities of businesses that are mandated by state law are exempt from federal antitrust laws. The exemption is referred to as this.
State antitrust laws
Most states have enacted these that attack anti competitive activity that occurs in intrastate commerce.
The securities act of 1933 and the securities exchange act of 1934
What are the two Federal securities Statutes?
The securities act of 1933
This federal statute primarily regulates the issue of securities by companies and other businesses.
the securities exchange act of 1934
This federal statute was enacted to prevent fraud in the subsequent treading of securities.
This must be found before federal securities laws apply.
Common securities, statutorily defined securities, and Investment contracts
A security can be any one of these three:
These securities are interested or instruments that are commonly known as securities, such as common stock, preferred stock, debentures, and warrants.
statutorily defined securities
These securities are interests and instruments that are expressly mentioned in securities acts as being securities, such as interests in oil, gas, and mineral rights.
This is any contract whereby an investor invests money or other consideration in a common enterprise and expects to make a profit from the significant efforts of others.
Securities and Exchange Commission (SEC)
Created in 1934, this is a federal administrative agency empowered to administer federal securities laws. They can adopt rules and regulations to interpret and implement federal securities.
Section 5 of the Securities Act of 1933
This requires an issuer to register its securities with the SEC to register its securities. It must contain information about the issuer, the securities to be issued, and other relevant information.
This is a document that an issuer of securities files with the SEC to register its securities. It must contain information about the issuer, the securities to be issued, and other relevant information.
This is a written disclosure document that is submitted to the SEC with the registration statement. It is distributed to prospective investors to enable them to evaluate the financial risk of the investment.
Prefiling period, Waiting period, and posteffective period
These are three limitations on activities concerning securities:
During this period, the issuer cannot offer to sell securities, sell securities, or condition the market.
During this period, the issuer cannot sell securities or make offers to sell securities other than by qualified prospectus or other approved writings.
During this period, the issuer may offer and sell securities. The issuer must make a final prospectus available to purchasers before or at the time of purchase.
Securities that should have been registered with the SEC but were not violates the Securities Act of 1933. Investors can rescind their purchase and recover damages. The U.S. government can impose criminal penalties on any person who willfully violates the Securities Act of 1933. What are the securities called?
Regulation A Offering
This offering permits an issuer to sell up to $5 million of securities to the public during a 12-month period pursuant to a simplified registration process.
Small Company Offering Registration Form (SCOR)
This form is a regulation that permits businesses to sell up to $1 million of securities to the public pursuant to a simplified registration process.
This form is a question-and-answer disclosure form that a business can complete and file with the SEC to sell securities pursuant to SCOR.
Section 11 civil liability, Section 12 civil liability, SEC actions, and Section 24 criminal liability.
List the different liabilities for violating the Securities Act of 1933 (4 points)
Section 11 civil liability
This provision of the 1933 act imposes civil liability on persons who intentionally defraud investors by making misrepresentations or omissions of material facts in the registration statement or are negligent in not discovering the fraud.
Section 12 civil liability
This provision of the 1933 act imposes civil liability on any person who violates the provisions of Section 5 of the act (ex. sells unregistered securities).
This federal agency may take certain legal actions against parties, including issuing consent orders or obtaining injunctions. (This if for violations of Securities Act of 1933)
Section 24 criminal liability
This provision of the Securities Act of 1933 imposes criminal liability on any person who willfully violates either the act or the rules and regulations adopted pursuant thereto.
Due diligence defense
This is defense to a Section 11 action that, if proven, makes the defendant not liable.
Section 501 of the Sarbanes-Oxley Act of 2002 (SOX)
This act eliminates conflicts of interest by establishing rules for the separation of the investment banking and securities advice functions of securities firms.
The issue, sale, purchase, and other transfer of securities using electronic means.
These exchanges include NYSE Euronext, the National Association of Securities Dealers Automated Quotation System (NASDAQ), and other securities exchanges worldwide.
The electronic data and record system of the Securities and Exchange Commission (SEC)
An e-initial public offering is where a company issues stock over the Internet. It is also known as this.
Note: Certain securities are exempt from registration. Once a security is exempt, it is exempt forever. It does not matter how many times the security is transferred.
Nonissuer exemption, Intrastate offering exemption, private placement exemption, and Small offering exemption
These transactions are exempt from the SEC registration process: (4 points)
Securities transactions not by an issuer, an underwriter, or a dealer are exempt from SEC registration. This covers normal purchases of securities by investors.
Intrastate offering exemption
A local business can issue securities within one state without dollar limit and without registering with the SEC if certain requirements are met. This is referred to as what?
private placement exemption
An issue of securities that does not involve a public offering is exempt from SEC registration. There is no dollar limit on the amount of securities that can be issued pursuant to this exemption. Securities can be sold to any number of accredited investors but to no more than 35 nonaccredited investors. This is referred to as what?
Small offering exemption
An offering of securities that does not exceed $1 million during a 12-month period is exempt from SEC registration. The securities may be sold to any number of purchasers. This is referred to as what?
Securities sold pursuant to the intrastate, private placement, or small offering exemptions are restricted securities. These are referred to as what?
This SEC rule stipulates that securities sold pursuant to an intrastate offering exemption cannot be sold to nonresidents for a period of nine months.
This SEC rule stipulates that securities sold pursuant to the private placement or small offering exemption must be held for 1 year before they can be resold.
Dodd-Frank Wall Street Reform and Consumer Protection Act
A federal statute that regulates the financial services and institutions, including hedge funds and derivatives.
A private investment company that has a limited number of wealthy investors that invests in risky investments.
This is a financial instrument, the value of which is determined by the price movements of another asset.
The Dodd-Frank act authorizes this concerning funds and derivatives.
Section 10(b) of the Securities Exchange act of 1934
This provision of the 1934 act prohibits the use of manipulative and deceptive devices in the purchase or sale of securities in contravention of the rules and regulations prescribed by the SEC.
This rule adopted by the SEC clarifies the reach of Section 10(b) against deceptive and fraudulent activities in the purchase and sale of securities.
Only conduct involving this (intentional conduct) violates Section 10(b) and Rule 10b-5. Negligent conduct is not a violation.
Section 10(b) and Rule 10b-5 civil liability, SEC actions, and Section 32 criminal liability
This is a list of the civil and criminal liability for violating the Securities Exchange Act of 1934 (3 points)
Section 10(b) and Rule 10b-5 civil liability
A private plaintiff has an implied right under these two parts to sue to rescind the securities contract or recover damages from defendant who has engaged in manipulative and deceptive practices that have caused the plaintiff injury.
The SEC may enter into consent orders with defendants, seek injunctions, or seek orders requiring defendants to disgorge illegally gained profits. (This if for violations of Securities Exchange Act of 1934)
Section 32 criminal liability
This section of the Securities Exchange Act of 1934 imposes criminal liability on any person who willfully violates either the act or the rules and regulations adopted pursuant thereto.
This occurs when an insider makes a profit by purchasing shares of a commodity prior to public release of favorable information or selling shares of the corporation prior to public disclosure of unfavorable information. It violates Section 10(b) and Rule 10b-5
This defined by Section 10(b) and Rule 10b-5 includes all employees of a company, independent contractors hired by the company on a temporary basis to provide services or work to the company, and other who owe a fiduciary duty to the company.
This is a person who discloses material nonpublic information to another person. He is liable for his or her own profits and the profits made by a tippee.
This is a person who receives material nonpublic information from a tipper. He is liable for acting on material information received from a tipper if he or she knew or should have known that the information was not public. He must disgorge profits made on the tip.
This is a rule that imposes liability under Section 10(b) and Rule 10b-5 on an outsider who misappropriates information about a company in violation of his or her fiduciary duty and then trades in the securities of that company.
Aiders and Arbettors
These are parties who knowingly assist principal actor in the commission of securities fraud.
This part of the Securities Exchange Act of 1934 defines a statutory insider as any person who is an executive officer, a director, or a 10-percent shareholder of an equity security of a reporting company.
These are profits made by statutory insiders on trades involving equity securities of their corporation that occur within 6 months of each other. SEC rules define these profits.
This part of the Securities Exchange Act of 1934 provides that short-swing profits made by a statutory insider belong to the corporation.
State Securities Laws
Most states have enacted these that regulate the issuance and trading of securities. These acts are often patterned after, and are designed to coordinate with, federal securities laws. (AKA "Blue-Sky" laws)
The Foreign Commerce Clause and the Treaty Clause.
These two provisions in the U.S. Constitution establish the federal government's authority to regulate international affairs.
The Foreign Commerce Clause
This vests congress with the power "to regulate commerce with foreign nations."
The Treaty Clause
This gives the president the authority to enter into treaties with foreign nations, subject to a two-thirds vote of the Senate.
This is an agreement between two or more nations that is formally signed by an authorized representative of each nation and ratified by each nation.
A treaty between two nations.
A treaty involving more that two nations.
A treaty that is sponsored by an international organization.
United Nations (UN)
This is an international organization headquartered in New York City. Most countries of the world are members of this. Its goals are to maintain peace and security in the world, promote economic and social cooperation, and protect human rights.
This is composed of all member nations. As the legislative body of the UN it adopts resolutions concerning human rights, trade, fiance and economics, and other matters within the scope of the UN Charter.
This is composed of 15 member nations, 5 of which are permanent members (China, France, Russia, the UK, and the US), and 10 other countries chosen by the members of the General Assembly to serve 2-year terms. The council is primarily responsible for maintaining international peace and security and has authority to use armed forces.
This administers the day-to-day operations of the UN. It is headed by the Secretary general, who is elected by the General Assembly.
International Monetary Fund (IMF)
An agency of the UN whose primary function is to promote sound monetary, fiscal, and macroeconomic policies worldwide by providing assistance to needy countries.
An agency of the UN whose primary function is to provide money to developing countries to fund projects for humanitarian purposes and to relieve poverty.
International Court of Justice (ICJ; World Court)
The judicial branch of the UN that hears and decides disputes between member nations.
European Union (EU)
A regional organization that is composed of many countries of western and eastern Europe. It reduced tariffs and other trade restrictions among member countries.
A single monetary unit that has been adopted by many countries of the EU that comprise the eurozone.
North American Free Trade Agreement (NAFTA)
A regional trade organization that has three member countries (Canada, Mexico, and the US). It reduced tariffs and other trade restrictions among member countries.
Association of Southeast Asian Nations (ASEAN)
An association of many countries of Southeast Asia that provides for economic and other coordination among member nations.
ASEAN Plus three
An informal association of the members of ASEAN and China, Japan, and South Korea.
Organization of the Petroleum Exporting Countries (OPEC)
An organization comprised of oil-producing and oil-exporting countries from Africa, Asia, the Middle East, and South America. They set quotas on the output of oil production by member nations.
Dominican Republic-Central America Free Trade Agreement (DR-CAFTA)
An organization of several Central American countries and the United States designed to reduce tariffs and trade barriers among member nations.
World Trade Organization (WTO)
This is an international organization of more than 150 countries that is headquartered in Geneva, Switzerland. Their goals are to limit tariffs and trade restrictions and provide a mechanism for resolving trade disputes among its member nations.
WTO Dispute Resolution
One of the primary functions of the WTO is to hear and decide trade disputes between member nations. The dispute is first heard by a three-member WTO panel, which issues a panel report. The members of the panel are professional judges from member nations. The decisions of the panel may be appealed to a higher WTO body. This function is referred to as what?
Act of state doctrine and Doctrine of sovereign immunity
National Courts are limited by these two principles of judicial restraint:
Act of state doctrine
This act states that judges of one country cannot question the validity of an act committed by another country within that other country's borders.
Doctrine of sovereign immunity
This doctrine states that countries are granted immunity from suits in courts in other countries. Some countries provide for absolute immunity, and other countries (such as the United states) provides a commercial activity exception where a foreign country is not immune from lawsuits in U.S. court.
Under this test, a security exists if an investor invests money in a common enterprise and expects to make a profit from the significant efforts of others.