Competition policy in the United States

Competition policy in the United States

 Competition policy consists of the body of laws of a state meant to encourage competition and to restrict negative behavior destined to remove competition from the market such as monopoly and cartel. The United States are considered to have the most strict competition laws and enforcement.[1]

In a monopoly situation there is only one provider of a product or service on the market, therefore this situation causes both the lack of competition and the lack of viable substitute goods. Competition is also limited by cartels, which are groups consisted of formally independent producers, who associate in order to fix prices, to limit supply and competition. In most countries antitrust laws prohibit cartels. Even in these circumstances, cartels continue to exist nationally and internationally, formally and informally.

In The United States the most important antitrust laws are: the Sherman Act of 1980, the Federal Trade Commission Act of 1914, the Clayton Act of 1914, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the National Cooperative Research and Production Act of 1993, the Webb-Pomerene Act and the International Antitrust Enforcement Assistance Act of 1994.[2]

The Sherman act is the first law in the U.S. to prohibit contracts and conspiracies in restraint of trade among U.S. states or with foreign nations. According to the Sherman Act it is against the law to monopolize trade or commerce. It is considered to be illegal for a company to use methods such as price fixing, bid-rigging, or other cartel activities, in order to acquire a monopoly position. In case the Sherman Act is violated, the corporation in cause is sentenced by the civil or criminal court to paying fines up to $10 million or up to three years in prison for individuals.

The Federal Trade Commission was created through the Federal Trade Commission Act of 1914 in order to prevent unfair competition and deceptive practices by writing regulations and conducting investigations.

The Clayton Act, the second most important antitrust law after the Sherman Act, was elaborated in order to prevent price discrimination, exclusive dealing, interlocking directorates and in order to prohibit mergers and acquisitions destined to limit competition and to form monopolies. Due to the Clayton Act, the Federal Trade Commission and the U.S. Justice Department have the authority to block mergers that violate antitrust laws.

According to the Hart-Scott-Rodino Act, companies have to notify the U.S. Justice Department’s Antitrust Division and the Federal Trade Commission before most mergers and acquisitions are consummated, therefore the enforcement agencies have time to examine the competitive consequences of the proposed mergers. The mergers can be refused entirely or can be accepted conditionally (the merging parties are required to sell off some of their assets).[3] After companies file their prior written notification with the U.S. Justice Department and the Federal Trade Commission, antitrust protection for joint research and development ventures may be established through the National Cooperative Research and Production Act of 1993.

A limited antitrust exemption is provided by the Webb-Pomerene Act for formation and operation of associations of otherwise competing businesses to engage in collective export sales.

The U.S. Justice Department and the Federal Trade Commission are authorized by the International Antitrust Enforcement Assistance Act of 1994 to enter mutual assistance agreements with foreign antitrust authorities and to share evidence of antitrust violations and to assist each other during the investigations.

The National Cooperative Research and Production Act of 1993 (NCRPA) is “designed to promote innovation, facilitate trade, and strengthen the competitiveness of the United States in world markets by clarifying the applicability of the rule of reason standard to the antitrust analysis of joint ventures and standards development organizations (SDOs) while engaged in a standards development activity, providing for the possible recovery of attorneys fees by joint ventures and SDOs that are prevailing parties in damage actions brought against them under the antitrust laws, and establishing a procedure under which joint ventures and SDOs that notify the Department of Justice and Federal Trade Commission (FTC) of their cooperative ventures and standards development activities are liable for actual, rather than treble, antitrust damages”.[4]

The requirements of the National Cooperative Research and Production Act apply to any country that is a party to certain international agreements with the United States, such as treaties of Friendship, Commerce and Navigation, Bilateral Investment Treaties, Free Trade Agreements, and various OECD instruments.[5]

There are two types of entities who are entitled to file notifications under the National Cooperative Research and Production Act: joint ventures and standards development organizations.[6]

Notifications under the Act may be filed by joint ventures engaged in activities such as research and development and also production. In the case of research and development activity the objectives of the activity may be: “theoretical analysis, experimentation, or systematic study of phenomena or observable facts; development or testing of basic engineering techniques; extension of investigative findings or theory of a scientific or technical nature into practical application for experimental and demonstration purposes, including the experimental production and testing of models, prototypes, equipment, materials, and processes; testing in connection with the production of a product, process, or service by such venture; collection, exchange, and analysis of research or production information”.[7] Regarding the production activity, the objectives of the activity in cause may be: “the production of a product, process or service; testing in connection with the production of a product, process or service by such venture; the collection, exchange and analysis of research or production information”.[8] A joint venture for production must follow two conditions in order to be eligible to file a notification: on the one hand, the main facilities for the production activity must be located in the United States or its territories, and on the other hand, each person that controls any party of the joint venture must be a United States citizen or a foreigner from a country whose law accords antitrust treatment no less favorable to United States persons than to such country’s domestic persons .

Also, notifications under the Act may be filed by standards development organizations (internal or international organization involved in planning, developing, establishing or coordinating voluntary consensus standards). It does not include the parties participating in the standards development organization.

“The eligibility for the Act’s detrebling provision depends on the filing of a notification with the federal antitrust enforcement agencies”.[9] In order to obtain damage protection, joint ventures parties must file a written notification both to the Department of Justice and to the Federal Trade Commission, simultaneously, within 30 days after entering into a written agreement to form the venture. The written notification must disclose the identities of all parties to the joint venture, as well as the nature and the objectives for which the joint venture is formed. Regarding the objectives of the joint venture, if the objective consists in the production of a product, process, or service, the written notification must also contain information regarding the nationality of all parties and the identity and nationality of all persons who control any party to the venture.

In the case of standards development organizations the written notification must be filed within 90 days after starting a standards development activity the notification must disclose the name and the main place of business of the standards development organization and also documents proving the nature and objectives of the standards development activity. Additional notifications must also be filed, if new or different activities are undertaken by the joint venture or if changes interfere in the membership of a joint venture. These additional notifications must be filed within 90 days after the change in cause.

Every notification consists of three components that apply to the three types of entities that may file (research and development joint ventures, production joint ventures and standards development organizations). The three components are: information concerning the identity and activities of the joint venture or SDO, Draft Federal Register Notice, Identification of person or persons with authority to approve the Federal Register Notice.

Anti-competitive behavior is discouraged by the cooperation between United States and foreign antitrust authorities. According to Randolph Tritell, Assistant Director for International Antitrust, Bureau of Competition, Federal Trade Commission Byline, “the globalization of international business has brought with it new challenges to the application of the U.S. antitrust laws outside the United States. Recent years have seen a sharp increase in the number and value of international transactions. Perhaps more than ever before, conducts by firms operating in one country have effects on consumers and businesses in other countries”.[10]

In Tritell’s opinion, these developments will encourage competition and will help external entrants on the United States market compete with domestic agents, offering new products, better quality and lower prices.[11] However, about half of investigated mergers by the Department of Justice and the Federal Trade Commission involve a foreign party.

Reference list:

1. “Competition policy”. On Wikipedia – the free encyclopedia. Last modified September 2006. On the Internet at  http://en.wikipedia.org/wiki/Competition_Policy. (accessed 24 October 2006).

2. SUMMARY OF MAJOR U.S. ANTITRUST LAWS. United States Information Agency. USIA Electronic Journal, Vol. 4, No. 1, February 1999. On the Internet at

http://usinfo.state.gov/journals/ites/0299/ijee/laws.htm . (accessed 24 October 2006).

3. “National Cooperative Research and Production Act of 1993”. http://149.101.1.32/atr/foia/divisionmanual/204293.htm. (accessed 24 October 2006).

4. Filing a notification under the NCRPA. United States Department of Justice Antitrust Division. On the Internet at http://www.usdoj.gov/atr/public/guidelines/ncrpa.htm. (accessed 24 October 2006).

5. Tritell, Randolph. “The application of U.S. antitrust laws to foreign conduct: recent developments”. United States Information Agency. USIA Electronic Journal, Vol. 4, No. 1, February 1999: On the Internet at http://usinfo.state.gov/journals/ites/0299/ijee/tritell.htm. (accessed 24 October 2006).

[1] “Competition policy”. On Wikipedia – the free encyclopedia. Last modified September 2006. On the Internet at  http://en.wikipedia.org/wiki/Competition_Policy. (accessed 24 October 2006).[2] SUMMARY OF MAJOR U.S. ANTITRUST LAWS. United States Information Agency. USIA Electronic Journal, Vol. 4, No. 1, February 1999. On the Internet at

http://usinfo.state.gov/journals/ites/0299/ijee/laws.htm . (accessed 24 October 2006).[3] Ibid.[4] “National Cooperative Research and Production Act of 1993”. http://149.101.1.32/atr/foia/divisionmanual/204293.htm. (accessed 24 October 2006).[5] Ibid.[6]. Filing a notification under the NCRPA. United States Department of Justice Antitrust Division. On the Internet at http://www.usdoj.gov/atr/public/guidelines/ncrpa.htm. (accessed 24 October 2006).[7] Ibid.[8] Ibid.[9] “National Cooperative Research and Production Act of 1993”. http://149.101.1.32/atr/foia/divisionmanual/204293.htm. (accessed 24 October 2006).[10] Tritell, Randolph. “The application of U.S. antitrust laws to foreign conduct: recent developments”. United States Information Agency. USIA Electronic Journal, Vol. 4, No. 1, February 1999: On the Internet at http://usinfo.state.gov/journals/ites/0299/ijee/tritell.htm. (accessed 24 October 2006).[11] Ibid.