Antitrust Laws

This essay is published for informational purposes only.  It is not legal advice, nor is it intended as a substitute for the advice of your attorney.

In the United States, State and Federal antitrust laws are intended to regulate trade and commerce in order to:

• Encourage competition;
• Prevent price fixing;
• Reduce prices to consumers;
• Prevent unlawful restraint of trade;
• Improve market efficiency;
• Reduce unfair trade practices;
• Promote healthy competition and
• Encourage production of high quality goods at low prices

For the credit professional, antitrust laws affect day-to-day credit decision making and business activities to the extent that pricing as well as payment terms [which are considered an element of price] are subject to U.S. antitrust laws.  In 1976, The Tunney Act, officially known as the Antitrust Procedures and Penalties Act increased the penalties for violating the Sherman Antitrust Act.  Penalties include fines, imprisonment, and liability for triple damages. The statute also permits a state Attorney General to sue for damages on behalf of its citizens and requires companies of a certain size to file pre-merger notices and receive approved from the U.S. Department of Justice to finalize the merger.

State Antitrust Statutes

In addition to federal laws, almost every state has laws prohibiting monopolies, contracts, conspiracies and combinations in restraint of trade. Such laws include fair trade or resale price maintenance laws, and prohibitions against price discrimination and sales below cost.  To a significant extent, these state laws mirror federal antitrust laws.

Governance of Antitrust Laws

The U.S. Department of Justice is not the only entity that that can pursue violations of antitrust lawsuits.  Violators may be subject to criminal prosecution, civil prosecution, or both.  Creditors should be aware that certain antitrust violations can result in criminal prosecution against an individual violator, while the Department of Justice simultaneously pursues the offending company.

Exchange of Credit Information and Antitrust Laws

A judicial precedent has been established that the extension of credit and other terms of sale comes under the scope of antitrust laws. It is generally appropriate for creditors of the same debtor to exchange credit information. However, since members of credit groups or creditors who exchange information may be in competition with one another, the exchange of sensitive information whether by group meetings or otherwise can justify a claim of antitrust violations. Thus, only factual, historical credit information may be exchanged.

Antitrust Guidelines for Creditors

The courts have held that a manufacturer has "the right to deal or refuse to deal with a particular distributor as long as it does so unilaterally." Any express or implied agreement among credit grantors or credit group members to do otherwise is a violation of antitrust laws, such as the following:

• Sell to any person or business;
• Establish or maintain prices, payment terms or conditions of sale;
• Extend credit to any person or business;
• Use a group service for illegal purposes, such as treating a delinquent account report as a "black list"

Creditors may discuss an account that is delinquent or has been delinquent in the past. However, the safer practice is to limit the information to completed credit transactions. Avoid discussing any unified action with your company's competitors, and in particular as it relates to selling to the same debtor.  This includes any agreed upon actions or plans with respect to factors including prices, payment terms, or discounts.

Maintaining accurate records can be essential in defending an allegation of antitrust violations. These include copies of memo-randa, letters, e-mail messages, and records of conversations. The following documentation can be helpful:

• Suggested price lists with language stating that the prices are only recommendations;
• Records of justification for canceling non-performing customers;
• Credit reports on which the creditor based a decision to restrict a credit line, cancel a credit line, or refuse credit;
• Records to substantiate the manner in which a competitor's lower price was brought to the creditor's attention, causing the creditor to make a change in price 

(Source: Manual of Credit and Commercial Laws, edited by Charles M. Tatelbaum and John K. Pearson)

Edited by Michael C. Dennis