In Brief: Application of Vertical Agreements in the United States
Complaints procedure for individuals
Is there a procedure for private parties to complain to the antitrust enforcement authority about alleged illegal vertical restraints?
A party wishing to file a complaint with the Federal Trade Commission (FTC) may file a “Request for Complaint”. Although there is no formal procedure for seeking action from the FTC, a complainant must submit to the FTC a signed statement containing all of the information necessary for the FTC to assess the general nature of their grievance ( see 16 CFR, Section 2.2(b)). Parties wishing to file complaints with the Department of Justice (DOJ) may file complaints by mail, telephone, Internet, or in person. The DOJ maintains an “antitrust hotline” to accept complaints over the phone. Sophisticated parties often hire a lawyer to file a complaint with either agency.
Application of regulations
How often is antitrust law applied to vertical restraints by the antitrust enforcement authority? What are the main enforcement priorities regarding vertical restraints?
The FTC and DOJ file few vertical restraint cases in any given year. Recent examples include the DOJ’s enforcement action against American Express (Amex) over exclusivity agreements and the FTC’s challenge to Qualcomm’s licensing practices and exclusivity chip agreements. In both cases, the government lost on appeal. The case against Amex was concluded after the Supreme Court ruled that the government had failed to demonstrate that Amex had market power in the market as a whole. In the FTC v. Qualcomm case, the Ninth Circuit ruled that Qualcomm’s conduct (i.e., refusals to license its standards-essential patents to competitors, refusals to supply manufacturers with ‘original equipment unless they were executing a license and making exclusivity payments to Apple) was not anti-competitive.
State attorneys general and private parties have been somewhat more active in challenging vertical restraints.
What are the consequences of an infringement of competition law for the validity or enforceability of a contract containing prohibited vertical restraints?
An agreement which is found to hinder trade is not valid against public order. However, a contract containing a prohibited vertical restraint will be considered enforceable in other respects where the other elements constitute “an intelligible economic transaction in themselves”, apart from any ancillary trade restriction agreement, and the performance of the other obligations of the defendant would not “make the courts a party to the enforcement of any of the very restraints prohibited by the Sherman Act” (see Kelly vs. Korsuga358 US 516, 518–520 (1959)).
Can the authority responsible for enforcing the antitrust laws directly impose sanctions or must it make a request to another entity? What sanctions and remedies can the authorities impose? What notable sanctions or remedies have been imposed? Can any trends be identified in this regard?
The FTC may initiate enforcement proceedings if the proceedings are in the public interest (see 16 CFR Section 2.31). If the FTC believes a violation has occurred, the commission may attempt to obtain voluntary compliance by entering into a consent order. If a consent agreement cannot be reached, the FTC may issue an administrative complaint. Section 5(b) of the Federal Trade Commission Act (the FTC Act) empowers the FTC, after notice and hearing, to make an order requiring a defendant found guilty of engaging in methods of unfair competition to “cease and refrain” from such conduct (15 U.S.C., Section 45(b)). Section 5(l) of the FTC Act authorizes the FTC to sue in federal district court for civil penalties of up to $43,792 per violation, or in the case of a continuing violation, 43 792 USD per day, against a party who violates the terms of a final order of the FTC (15 USC, section 45(l)). Section 13 of the FTC statute authorizes the FTC to seek preliminary relief and other injunctions pending resolution of its own administrative complaint (15 USC, Section 53). In addition, Section 13(b) of the FTC Act (15 USC, Section 53(b)) authorizes the FTC, in an “appropriate case”, to seek a permanent injunction against entities that have violated or threatened to violate any of the laws it administers. While the FTC has historically invoked its authority to seek equitable monetary relief for Section 5 violations in lawsuits for a permanent injunction under Section 13(b) of the FTC Act, the Supreme Court recently ruled ‘ that Section 13(b) as currently drafted does not grant the Commission the power to obtain equitable monetary relief. AMC Capital Management v FTC, 593 United States ___ (2021). While other statutes give the FTC the power to seek restitution, they are more binding on the FTC and restitution may take longer. get. There are currently legislative proposals to restore the FTC’s ability to more easily obtain restitution.
The DOJ has exclusive federal government authority to enforce the Sherman Act and shares federal authority to enforce the Clayton Act with the FTC and other agencies. Sections 1 and 2 of the Sherman Act give the DOJ the power to prosecute violations by criminal indictment or civil complaint, although it is unusual for the DOJ to seek criminal penalties in the area of vertical restraints. Under section 4 of the Sherman Act (15 USC Part 4) and Section 15 of the Clayton Act (15 U.S.C. Sec. 25), the DOJ may seek an injunction “to prevent and restrain violations” of the respective acts and order the government “to institute equitable proceedings to prevent and restrain such violations.” Under Section 4A of the Clayton Act, the United States, acting through the DOJ, may also sue for damages for three times the damages suffered by the United States as a result of violations of antitrust laws (15 U.S.C. Sec. 15a). Finally, a party investigated by the DOJ may enter into a consent decree with the agency. Procedures governing the approval of consent decrees are outlined in Tunney’s Law (15 USC, Section 16(b)–(h)).
State attorneys general and private parties can also enforce federal antitrust laws and must bring cases in federal court.
In vertical restraint cases, federal agencies have tended to focus their efforts on cases where an injunction is needed or where the law could be clarified, rather than pursuing cases seeking monetary relief.
Investigative powers of the authority
What investigative powers does the antitrust enforcement authority have when enforcing the ban on vertical restraints?
The FTC can initiate an investigation informally through a “request letter,” which requests specific information. A party has no legal obligation to comply with such requests. Additionally, the FTC may use a mandatory process instead of or in addition to the voluntary means. Section 9 of the FTC Act provides that the FTC or its agents must have access to any “documentary evidence” in the possession of a party under investigation or proceeding “for the purpose of examining and copy” (15 U.S.C. Sec. 49 and 16 CFR part 2.11). It also gives the Commission the power to subpoena the attendance and testimony of witnesses and the production of documentary evidence.
The investigative power most commonly used by the DOJ in conducting civil antitrust investigations is the Civil Investigation Request (CID). The Antitrust Civil Procedure Act (15 USC, Sections 1311-1314), authorizes the DOJ to issue CIDs in connection with actual or potential violations of antitrust laws. A CID is a general subpoena that can be issued to anyone who the Attorney General or Deputy Attorney General has reason to believe may be in “possession, custody, or control” of material relevant to a civil investigation. A CID may require the production of documents, oral testimony or written answers to examinations.
To what extent is private execution possible? Can non-parties to agreements containing vertical restraints obtain judgments or declaratory injunctions and sue for damages? Can the parties to the agreements themselves sue for damages? What remedies are available? How long should a business expect private enforcement action to take?
Section 4 of the Clayton Act (15 USC, Section 15) authorizes the recovery of treble damages by “any person . . . injured in his business or property by reason of anything prohibited by the antitrust laws” .
Section 16 of the Clayton Act (15 USC, Section 26) also provides a private right of action for an injunction.
Although Sections 4 and 16 of the Clayton Act permit a private right of action for violations arising under both the Sherman and Clayton Acts, they do not permit a private right of action under Section 5 of the Federal Trade Commission Act. Sections 4 and 16 of the Clayton Act provide that a successful plaintiff may recover reasonable attorneys’ fees. The time it takes to bring a private lawsuit varies greatly depending on the complexity and circumstances of the litigation.
A private plaintiff seeking antitrust damages must establish antitrust standing, which requires, among other things, that the plaintiff show that their alleged harm is of the type that antitrust laws were intended to protect. With few exceptions, an indirect purchaser (i.e., a party that does not purchase directly from the defendant) is not deemed to have suffered antitrust injury and is therefore barred from bringing a private action for damages. -interest under section 4 of the Clayton Act (see Illinois Brick vs. Illinois431 US 720 (1971)). Indirect Purchasers may file claims under certain national antitrust laws. Both parties and non-parties to agreements containing vertical restraints may sue for damages as long as they successfully qualify to act.