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Frequently Asked Questions | Antitrust and Competition
A practical guide to understanding how U.S. antitrust laws promote competition, prevent monopolies, and protect consumers.
Welcome to our Antitrust FAQ page. This resource is designed to help you better understand the fundamental concepts, legal principles, and real-world applications of antitrust law in the United States. Antitrust laws play a crucial role in maintaining competitive markets by preventing monopolistic practices, fostering innovation, and ensuring consumers benefit from fair prices and quality products. Whether you're a student, professional, policymaker, or simply curious about how these laws shape the modern economy, this FAQ offers clear, concise answers to the most frequently asked questions about monopolies, mergers, market power, and more.
1. Introduction to Antitrust Law
Antitrust law refers to the body of federal and state legislation, court decisions, and federal agency policies that aim to prevent firms from reducing competition or maintaining a monopoly in the marketplace. Antitrust law helps keep markets open, prices fair, and innovation thriving by discouraging monopolization and collusion. US antitrust law prohibits some business practices and mergers outright, while individually evaluating others that could have both pro- and anticompetition implications.
Sources:
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, March 2021).
- Satya Marar, “Artificial Intelligence and Antitrust Law: A Primer” (Mercatus Special Study, Mercatus Center at George Mason University, March 2024).
- “Guide to Antitrust Laws,” Federal Trade Commission, accessed March 20, 2025.
The three main federal antitrust laws are the Sherman Act, the Clayton Act and its amendments, and the Federal Trade Commission Act.
- The Sherman Act Section 1
Section 1 of the Sherman Act prohibits “restraints of trade” agreements between companies. These are agreements that unreasonably restrain trade and therefore harm competition and consumers. Examples of violations include per se (always) illegal agreements to fix prices or rig bids, as well as less pernicious agreements, such as restrictions on distribution, assessed case by case under the “rule of reason,” which deems them illegal only if their anticompetitive harm outweighs their procompetitive benefits. - The Sherman Act Section 2
Section 2 of the Sherman Act bans a firm’s attempts to create or maintain a monopoly by excluding rivals from the market without a valid business justification—meaning the firm is engaged in competition “not on the merits,” that is, it is not competing based on superior products or services, but through exclusionary tactics. - The Clayton Act Section 7
Section 7 of the Clayton Act prohibits mergers or acquisitions that may substantially decrease competition, such as by increasing the ability and incentive for the merged firm to raise prices, lower product quality, or restrict output, either by itself or in conjunction with other firms. - The Hart-Scott-Rodino Antitrust Improvements Act
An amendment to the Clayton Act, the Hart-Scott-Rodino Antitrust Improvements Act requires firms to disclose certain proposed merger informationto the antitrust enforcement agencies if the deal’s value meets a certain monetary threshold. - The Robinson-Patman Act
An amendment to the Clayton Act, the Robinson-Patman Act prohibits certain forms of price discrimination and exclusive discounts or promotions between a firm and its supplier. - The Federal Trade Commission Act
Also known as the FTC Act, this legislation creates a specialized administrative agency known as the Federal Trade Commission and vests it with the power to police Sherman Act violations, Clayton Act violations, “unfair methods of competition,” and unfair or deceptive business acts or practices that fall under the framework of consumer law.
Sources:
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2021).
- Satya Marar, “Artificial Intelligence and Antitrust Law: A Primer” (Mercatus Special Study, Mercatus Center at George Mason University, 2024).
- “Guide to Antitrust Laws,” Federal Trade Commission, accessed March 20, 2025.
- Roger Blair and Christina DePasquale, “ ‘Antitrust’s Least Glorious Hour’: The Robinson-Patman Act,” The Journal of Law and Economics 57.S3 (2014): S201-S215.
- Timothy J. Muris, “The FTC and the Law of Monopolization,” Antitrust Law Journal 67 (1999): 693.
- Standard Oil Co. v. United States, 221 U.S. 1, 64 (1911).
Antitrust laws protect consumers by punishing firms that gain or keep monopoly power.
When properly enforced, antitrust laws promote competition by providing guardrails that leave businesses free to innovate, experiment, and grow to better serve the market. Competition benefits consumers through lower prices and better products.
Sources:
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2021).
- Satya Marar, “Artificial Intelligence and Antitrust Law: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2024).
Sometimes. Federal antitrust laws can prevent price gouging when it involves anticompetitive conduct, but most state-level price gouging laws fall outside of antitrust.
Antitrust law applies though the following federal statues:
- Sherman Act Section 1 prohibits unreasonable restraints of trade, including agreements between competitors to fix prices. Price fixing is considered per se illegal and is a form of price gouging.
- Sherman Act Section 2 prohibits exclusionary conduct that creates or maintains a monopoly through anticompetitive means. This provision helps prevent firms from price gouging by ensuring that businesses gain and keep market power by better serving consumers, not by charging prices above competitive market conditions.
- Clayton Act Section 7 blocks mergers that would substantially increase the merged firm’s ability and incentive to facilitate price gouging.
Most state-level price gouging laws are enforced under trade practices laws, not antitrust. These laws apply to the conventional definition, according to which price gouging occurs when retailers take advantage of emergencies and natural disasters by charging exorbitant prices during short-term demand spikes. For example, 39 US states, the District of Columbia, Puerto Rico, the US Virgin Islands, and the Northern Mariana Islands have laws that prohibit “exorbitant” pricing under declared emergencies.
Some economists argue that price-gouging laws prevent markets from resolving scarcity problems more efficiently and thereby harm rather than help consumers and people affected by emergencies. Instead, to address scarcity and improve access to goods and services, economists recommend repealing these laws and providing emergency aid to areas experiencing price spikes.
Sources:
- Federal Trade Commission, “Price Fixing,” accessed May 7, 2025.
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2021).
- National Council of State Legislatures, “Price Gouging State Statutes,” accessed May 7, 2025.
- Steve Parsons, “An Examination of Anti-Price Gouging Laws and Shortages During COVID-19,” Loyola Journal of Public Interest Law 22 (2020): 37.
The consumer welfare standard is the dominant framework courts and agencies use to assess whether a merger or business practice violates US antitrust laws, including the Clayton, Sherman, and Federal Trade Commission Acts.
Key features of the standard include the following:
- Focus on consumer harm
Conduct is anticompetitive only if it harms consumer welfare, which is enhanced when businesses maximize output relative to price. Output can be measured through quantity, innovation, quality, and other metrics. - Economic foundation
The consumer welfare standard is rooted in the work of Chicago school economists and judge Robert Bork. It has shaped Supreme Court antitrust jurisprudence since the 1970s and was endorsed by a bipartisan majority of antitrust agency leadership until the Biden administration came to power. - Departure from earlier approaches
It marked a departure from the earlier approaches that touted the evils of big business and market concentration as well as the need to protect small businesses from competition, regardless of consumer impact. - Emphasis on empirical analysis
Courts and scholars applying the consumer welfare standard emphasize the quantitative tools of economic analysis over abstract or speculative theories about how a merger or business practice may be anticompetitive.
Example: Instead of assuming a merger is harmful because of market share alone, analysts might estimate whether a merged grocery chain would lose fewer customers to rival retailers if it raised prices—providing a more data-driven basis for judgment. - Business conduct is presumed legal unless net harm is likely
The standard does not impose liability on businesses simply because officials believe consumers could hypothetically be better served. Instead, it gives businesses leeway in determining how to best serve consumers, unless those actions likely result in net anticompetitive harm. - Reinforced by case law
In United States v. Grinnell Corp., the Supreme Court held that a monopolist is not in violation of the law if its dominance was achieved through a superior product, business acumen, or historical accident—that is, by better serving consumers.
Sources:
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2021).
- Satya Marar, “Artificial Intelligence and Antitrust Law: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2024).
- United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966).
- Robert H. Bork, The Antitrust Paradox, 1st ed. (Basic Books, 1978).
- Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979)
- Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice, 7th ed. (West Academic, 2024).
Critics argue that the consumer welfare standard is too narrow and has failed to prevent concentrated market power in many American industries. They contend that tech giants and large digital platforms—such as Meta (social media), Google (searching and advertising), and Amazon (e-commerce)—have gained outsized economic and political influence. This outcome, they argue, is inherently bad, as it concentrates power in a few hands and reduces accountability. It can also facilitate speech censorship, which harms the democratic process, public discourse, and debate.
Common criticisms include the following:
- Neglect of broader policy goals: Critics say the standard overlooks concerns such as labor rights, environmental protection, and the protection of small businesses.
- Overreliance on price-based analysis: Some advocate an approach to antitrust enforcement that prioritizes the concerns of other market stakeholders besides consumers. They argue that antitrust enforcement should be more aggressive, breaking up large firms and blocking mergers or business practices that make it harder for smaller competitors to survive, even if these mergers and practices might lower prices for consumers.
- Failure to account for nonquantifiable harms: Critics claim that in digital markets, consumers who benefit from targeted advertising may also face harms such as data exploitation and reduced privacy.
Sources:
- Christopher S. Yoo, “The Post-Chicago Antitrust Revolution: A Retrospective,” University of Pennsylvania Law Review 168, no. 7 (2020): 2145–69.
- Louis D. Brandeis, “A Curse of Bigness,” Harper’s Weekly, January 10, 1914, 18.
- Barak Orbach and Grace E. Campbell Rebling, “The Antitrust Curse of Bigness,” Southern California Law Review 85, no. 3 (2012): 605–56.
- A Conversation with FTC Commissioner Andrew Ferguson Hosted by Alden Abbott (Mercatus Center, 2024).
- Emily Birnbaum, “‘Big Tech Censorship’ of Users Targeted by Trump’s FTC Chief,” Seattle Times, Feb 21, 2025.
- Lina Khan, "Amazon's Antitrust Paradox," Yale Law Journal,126 (2016): 710.
- Council of Economic Advisers, Benefits of Competition and Indicators of Market Power, April 2016.
Proponents argue that the consumer welfare standard offers clear, consistent rules for evaluating harm—and that alternative approaches risk politicizing antitrust enforcement.
Key reason why the standard endures:
- Lack of clear evidence on market harm
The leading studies cited to support the claims of rising concentration of large firms in US industries do not describe actual competition within specific markets or the competitive pressures that individual firms face in those industries. - Concentration may reflect competition
Increased concentration in a market may be the result of vigorous—not reduced—competition. Larger companies benefit from economies of scale and may be better able to pass cost savings on to consumers, thereby offering lower prices than smaller competitors can match for products of similar quality. Breaking up the large companies could harm competition by punishing businesses for better serving consumers. - Policy goals need targeted legislation—
Proponents of consumer welfare believe that the concerns of workers, communities, and small businesses are best addressed through targeted legislation on labor, the environment, privacy, and communications. For example, when a locality passes a law to increase the minimum wage, it accepts the tradeoff of potentially higher unemployment and higher costs for businesses and consumers in return for potentially higher living standards for employed workers. - —not politicized enforcement of antitrust law
Using antitrust law to pursue stakeholder concerns, such as labor rights, could lead to arbitrary, inconsistent, and costly antitrust enforcement by regulators or courts against conduct that benefits consumers and competition. This is because it is difficult to quantify or objectively attribute weights to the competing concerns. For example, it would be undemocratic to leave judgments about weighing competing policy concerns like employment, consumer prices, and minimum wage to an unelected judge or antitrust official rather than to a legislature. - Consumer choice reflects real tradeoffs
Consumers who choose to use a free search engine or social media platform in exchange for reduced privacy or the sharing of their personal data may be making a conscious tradeoff based on their own preferences rather than reacting to a market failure to protect privacy. - Promotes legal and economic clarity
The consumer welfare standard, rooted in empirical data and economic tools, promotes consistency and predictability while reducing subjective judgments about how businesses compete within the law. This encourages business dynamism, leading to more competition, experimentation, innovation, and ultimately, lower prices for consumers. Fewer firm resources are diverted to influencing enforcers, navigating regulatory uncertainty, or fighting legal disputes driven by shifting political priorities.
Sources:
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2021).
- Satya Marar, “Artificial Intelligence and Antitrust Law: A Primer” (Mercatus Special Study, Mercatus Center at George Mason University, 2024).
- White House, Economic Report of the President, February 2020.
- Carl Shapiro, “Antitrust in a Time of Populism,” International Journal of Industrial Organization 61, Issue C (2018): 722.
The per se rule in antitrust law deems certain business practices to be presumptively illegal as they are likely to always have anticompetitive effects. Naked price fixing and bid rigging are prime examples of per se illegal practices.
Sources:
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2021).
The rule of reason is a legal test courts use to determine whether a merger or business practice is anticompetitive based on its actual effects—not just its form. The court will weigh the likely anticompetitive effects of the practice or merger against any likely countervailing procompetitive justifications. Unlike conduct that is per se illegal (such as price fixing, bid rigging, and agreements between competitors to allocate customers), practices evaluated under the rule of reason are assessed case by case.
Example: If a firm is accused of monopolization for acquiring a supplier of a key business input, it may argue that the acquisition was to lower its own costs rather than to harm competition by reducing its competitors’ access to that input.
Sources:
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2021).
Antitrust courts apply two different legal standards to evaluate potentially anticompetitive conduct: the rule of reason and per se illegality.
Per se illegality
- Applies to conduct that is automatically presumed unlawful, regardless of context or intent.
- No need to evaluate competitive effects or procompetitive justifications.
- Reserved for conduct that almost always harms competition.
Examples:
Price fixing between competitors
Bid rigging
Market or customer allocation agreements
Rule of reason
- Used for practices that may have both anticompetitive and procompetitive effects.
- Courts conduct a case-by-case analysis to weigh harms against benefits.
- Allows for business justifications, like cost savings, innovation, or increased efficiency.
Examples:
Exclusive dealing
Vertical mergers
Joint ventures with shared operations
Antitrust laws regulate supplier-retailer relationships to prevent practices that unfairly restrict market access, raise prices, or harm consumers.
These laws apply to both wholesale markets (where suppliers sell to retailers) and retail markets (where consumers buy the products). Examples of how antitrust laws impact retailer-supplier relationships include the following:
- Exclusive dealing or requirements contracts
Exclusive dealing contracts may prohibit a retailer from selling competitors’ products, and requirements contracts prohibit manufacturers from buying inputs from alternative suppliers.
These agreements are normally lawful and are judged under the “rule of reason,” which weighs anticompetitive effects against procompetitive justifications. Procompetitive justifications include encouraging marketing support for a manufacturer’s brand among its retailers.
Conversely, if a supplier or manufacturer with market power uses such contractual restraints to prevent smaller rivals from entering the marketplace through the distribution channels necessary to make sales and compete effectively, then this may be an unreasonable restraint of trade in violation of Sherman Act Section 1. It may also violate Sherman Act Section 2, as it excludes competition and entrenches the supplier’s monopoly rather than representing competition on the merits. - Customer allocation contracts
Contracts between suppliers to strictly divide retailer customers between them (for example, “I will only sell to firms 1 and 2, you will only sell to firms 3 and 4”) are per se illegal unreasonable restraints of trade under the Sherman Act. Less restrictive variations on strict customer allocation contracts may also constitute an illegal unfair method of competition under FTC Act Section 5.
Example: The FTC settled a case in 1996 where two fire truck pump manufacturers agreed to offer contracts to their purchasers stipulating that any additional pumps would be purchased from the manufacturer already supplying them. This allegedly constituted an unfair method of competition as it reduced competition between the two suppliers and also restricted competition from rival suppliers. - Illegal exclusive discounts under the Robinson-Patman Act
See the section on the Robinson-Patman Act.
Sources:
- Federal Trade Commission, “Exclusive Dealing or Requirements Contracts,” accessed May 7, 2025.
- ‘In the Matter of Waterous Company, Inc./ Hale Products, Inc. File No. 901 0061.
- Alden Abbott and Satya Marar, “The Robinson-Patman Act: A Statute at Odds with Competition and Economic Welfare” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2023).
The Robinson-Patman Act (RPA) is an amendment to the Clayton Act, prohibiting certain forms of price discrimination—when a supplier gives better pricing, discounts, or promotional terms to one buyer over another.
It was originally intended to protect small businesses from being undercut by large, high-volume buyers.
Price discrimination may be illegal when it
- lacks cost justification, and
- harms competition between buyers (e.g., retailers).
RPA lawsuits may be brought by
- competition enforcement agencies, or
- competitors who were harmed by receiving worse terms from a shared supplier.
There are the two types of injury under the RPA:
- Primary-line injury occurs at the seller level.
Primary-line injury occurs when a firm’s competitor sells its goods at a lower price in the firm’s geographic market compared to other markets. For example, a big-box retailer selling its goods below cost in a single locality over a sustained time period inflicts a primary-line injury on its competitors in that market. - Secondary-line injury occurs at the buyer level.
Secondary-line injury affects an aggrieved firm when its supplier gives price advantages to its competitor or competitors.
Legal defenses used by firms accused of violating the Robinson-Patman Act:
- Meeting competition
A defendant seller is permitted to offer lower prices or promotions to a buyer if the seller believes in good faith that they are matching a competitor’s offer. To rely on this defense, sellers only need to meet the generally lower price structure that a competing seller offers in another geographic market instead of having to demonstrate that they were meeting the offers of other sellers on a customer-by-customer basis. - Cost justification
Defendant sellers are permitted to offer different prices to different buyers based on differences in the costs of manufacturing, selling, or delivering goods to specific buyers. - Changing market conditions
Defendant sellers are permitted to offer different prices to different buyers in response to changing external conditions such as seasonality, perishability, obsolescence, or fluctuations in demand. - Functionally available discount
Defendant sellers won’t be found liable for offering a different price to a different buyer if they can show that the same discount was available to all buyers under similar conditions. - Favored buyers are not close competitors
Price differences are lawful if buyers don’t compete head-to-head for the same customers in the downstream market.
Example: A manufacturer is permitted to sell its product to a wholesaler at a different price than to a vertically integrated retail chain because they serve different types of customers.
The number of defenses to RPA liability and their scope have been expanded by courts over time. However, the high costs and uncertainty entailed in litigation as well as the potential for large (treble) damages awards and difficulty in providing sufficient evidence for defenses like cost justification may still drive defendants to settle cases or avoid pro-competitive business arrangements even if these may be found legal in court.
History and interpretation of the RPA
Unlike most antitrust laws, the RPA was designed to protect smaller firms from powerful buyers—and not just to promote competition, efficiency, or low prices for consumers. Over time, however, courts have increasingly interpreted it through the lens of consumer welfare, requiring plaintiffs to show harm to competition, not just individual competitors. In secondary-line cases, however, courts still interpret the RPA as penalizing harm to direct competitors relying on the same supplier or wholesaler, even if such harm benefits consumers in the wider market through lower prices.
Sources:
- Alden Abbott and Satya Marar, “The Robinson-Patman Act: A Statute at Odds with Competition and Economic Welfare” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2023).
- Kenneth G. Elzinga and Thomas F. Hogarty, “Utah Pie and the Consequences of Robinson-Patman,” Journal of Law and Economics 21, no. 2 (1978): 427–34.
- Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
- Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006).
For decades critics—including economists, legal scholars, government agencies, and the bipartisan Antitrust Modernization Commission (2007)—have argued that the RPA protects competitors at the expense of consumers, distorting modern antitrust goals. Enforcement declined for decades until a recent revival under the Biden administration. Criticisms include the following:
- Outdated purpose: The RPA aims to protect competitors from more efficient or effective rivals rather than to uphold competition and consumer welfare, thereby placing it at odds with other antitrust laws as well as the main purpose of antitrust.
- Redundant enforcement: Predatory pricing is already punishable under Sherman Act Section 2, making parts of the RPA unnecessary.
- Chilling effect on discounts: Businesses may avoid vigorously negotiating discounts for fear of RPA litigation—even if the discount can benefit consumers.
- Resource misallocation: Some firms sell similar products with different names to different buyers, solely to avoid RPA liability. This diverts efforts away from serving customers.
- Barrier to competition: The law may deter suppliers from serving smaller buyers and entice them to instead sell to large buyers who can negotiate steeper discounts through their bulk buying power. Selling at a higher price to smaller buyers could render the supplier vulnerable to an RPA lawsuit.
For these reasons, critics have proposed either repealing the RPA entirely or reforming it to align with consumer-focused antitrust principles, especially in secondary-line injuries.
Sources:
Alden Abbott and Satya Marar, “The Robinson-Patman Act: A Statute at Odds with Competition and Economic Welfare” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2023).
Kenneth G. Elzinga and Thomas F. Hogarty, “Utah Pie and the Consequences of Robinson-Patman,” Journal of Law and Economics 21, no. 2 (1978): 427–34.
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006).
Alvaro N. Bedoya, “Returning to Fairness” (prepared remarks of Commissioner Alvaro M. Bedoya, Midwest Forum on Fair Markets, Minneapolis, MN, September 22, 2022), 7.
U.S. Department of Justice, Report on the Robinson-Patman Act (Washington, DC: US Government Printing Office, 1977).
Antitrust Modernization Commission, Report and Recommendations (Stratford, CT: Imperial Graphics, 2007).
U.S. Federal Trade Commission, Dissenting Statement of Commissioner Melissa Holyoak, In the Matter of Southern Glazer’s Wine & Spirits, LLC Commission File No. 2110155 (Dec 12, 2024).
2. Competition and Consumer Welfare
Competition benefits consumers by driving businesses to offer better products and services at lower prices. Vigorous competition also encourages innovation and pushes firms to develop more efficient and effective technologies and business practices.
Sources:
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2021).
- Satya Marar, “Artificial Intelligence and Antitrust Law: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2024).
An unfair method of competition is a business practice that threatens to harm competition or violate the underlying principles of antitrust laws. Under Section 5 of the Federal Trade Commission Act, this includes conduct that
- violates the spirit, letter, or public policy goals of the Clayton Act or Sherman Act, or
- is likely to lead to a violation of those laws if left unchecked.
Example: Price fixing between competitors is clearly illegal under the Sherman Act. But even sending an email inviting a competitor to fix prices—while not agreement in itself—may be deemed an unfair method of competition under FTC Act Section 5. The FTC has treated such invitations as illegal because they signal anticompetitive intent and could facilitate collusion.
The goal of this statute is to stop anticompetitive conduct early, before it ripens into a full-blown violation.
Sources:
- Gregory Werden, “Unfair Methods of Competition under Section 5 of the Federal Trade Commission Act: What Is the Intelligible Principle?” (Mercatus Working Paper, Mercatus Center at George Mason University, May 2023).
Predatory pricing is when a firm lowers its prices below sustainable levels and incurs losses in order to drive out competitors and then raises prices once rivals have exited the market.
- This practice is only illegal under Section 2 of the Sherman Act if the firm has a “reasonable prospect” or “dangerous probability” of recovering its losses during the predatory price period.
- Aggressive price competition typically benefits consumers and is not considered predatory pricing.
- Mislabeling legitimate price competition as “predatory pricing” can harm competition and consumers by deterring businesses from competing vigorously or operating more efficiently.
Sources:
- Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
- John S. McGee, “Predatory Pricing: The Standard Oil (N.J.) Case,” Journal of Law and Economics 1 (1958): 137–69.
- Kenneth G. Elzinga and Thomas F. Hogarty, “Utah Pie and the Consequences of Robinson-Patman,” Journal of Law and Economics 21, no. 2 (1978): 427–34.
- Alden Abbott and Satya Marar, “The Robinson-Patman Act: A Statute at Odds with Competition and Economic Welfare” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2023).
3. Enforcement and Agencies
Antitrust laws are enforced at both the federal and state levels, and in some cases, by private parties.
- At the federal level, enforcement is led by the Federal Trade Commission (FTC) and Department of Justice (DOJ) Antitrust Division.
- State attorneys general can also bring cases under federal or state antitrust laws, either on behalf of the public or the state as a purchaser.
- Private parties may sue for civil relief, including treble damages under the Sherman or Clayton Acts, or seek injunctions under federal and state antitrust law.
The FTC and DOJ share antitrust enforcement authority, but they differ in legal powers and areas of specialization.
Division of cases: The agencies coordinate to decide which will handle a given matter, and over time, each has developed expertise in certain markets and industries.
Statutory authority: Only the FTC can enforce the FTC Act, which prohibits unfair methods of competition.”
Criminal enforcement: Only the DOJ can bring criminal charges for antitrust violations, such as price fixing of bid rigging.
Civil enforcement: Both agencies can seek injunctions and civil penalties under the Sherman and Clayton Acts.
Antitrust investigations by the Federal Trade Commission (FTC) or the Department of Justice (DOJ) can begin from a variety of sources, including merger filings, public tips, or government oversight.
To preserve the investigation’s integrity and to protect the identity and reputation of the individuals and firms involved, these investigations are not typically made public until the agency decides to prosecute. Specifically, investigations may be triggered by the following:
Premerger notification filings, which are mandatory for merger deals exceeding certain monetary thresholds.
Tips from consumers or businesses reporting potentially anticompetitive behavior.
Academic articles or news reports highlighting economic or consumer issues.
Congressional inquiries into specific industries or firms.
A consent decree is a legal settlement in which a company agrees to stop allegedly anticompetitive conduct without admitting wrongdoing.
The Federal Trade Commission (FTC) or the Department of Justice (DOJ) may seek a binding consent decree—also called consent order—to settle litigation by having plaintiffs agree to cease allegedly anticompetitive practices without having to admit wrongdoing. Similarly, consent orders may allow a proposed merger to proceed if the companies take certain steps to resolve the FTC’s or DOJ’s anticompetitive concerns, such as divesting overlapping business units or exiting certain geographic markets.
The FTC is an independent federal agency responsible for enforcing antitrust and consumer protection laws in the United States.
- Creation and authority: The FTC was established by the Federal Trade Commission Act of 1914. It is an independent agency that enforces antitrust and consumer law under both the Clayton Act and the FTC Act.
- The Clayton Act prohibits anticompetitive mergers and certain anticompetitive practices.
- The FTC Act prohibits “unfair methods of competition” and unfair or deceptive business practices.
- Violations of the Sherman Act are also considered to be violations of the FTC Act.
- Structure: The agency is headed by five commissioners, nominated by the President and confirmed by the Senate. One commissioner is designated as the chair. As of March 2025, the chair is Andrew Ferguson, appointed by President Trump.
- Areas of focus: Most of the FTC’s resources are dedicated to economic segments characterized by high consumer spending. These include pharmaceuticals, healthcare, food, professional services, energy, and high-tech sectors including computers and online services.
- Enforcement and procedure: Commissioners vote on which investigations the FTC pursues and whether to bring enforcement actions against mergers or anticompetitive conduct. Enforcement actions may be taken in federal court or be heard internally as administrative complaints before an administrative law judge (ALJ). The ALJ may issue a cease-and-desist order. The ALJ decisions may be appealed to the full Commission, then to the US Court of Appeals, and ultimately to the Supreme Court. The FTC must go to federal court to seek consumer redress, civil penalties, or preliminary or permanent injunctions to block mergers. The FTC may also challenge a merger in an in-house administrative proceeding, usually after having received a preliminary injunction in court.
The DOJ Antitrust Division enforces federal antitrust laws by bringing civil and criminal cases against firms that engage in anticompetitive behavior.
- Creation and authority: The DOJ Antitrust Division was created in 1919 to enforce the Sherman Act and Clayton Act. It is headed by an assistant attorney general for antitrust, who is nominated by the president and confirmed by the Senate. The assistant attorney general reports to the DOJ’s associate attorney general.
- Industry focus: The DOJ has exclusive antitrust jurisdiction in certain industries including airlines, railroads, banking, and telecommunications.
- Enforcement powers and procedure: The DOJ may sue in federal court to obtain injunctions and civil penalties against harmful conduct or illegal merger. It can also seek a criminal conviction and financial penalties for hardcore “per se” illegal violations, such as price fixing or bid rigging.
Sources:
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2021).
- Satya Marar, “Artificial Intelligence and Antitrust Law: A Primer” (Mercatus Special Study, Mercatus Center at George Mason University, 2024).
- “Guide to Antitrust Laws,” Federal Trade Commission, accessed March 20, 2025.
Not currently. The law says FTC commissioners can only be removed for cause, and the Supreme Court upheld that limit when they last considered the question in the 1930s—but the issue remains contested.
Legal background
- The FTC Act of 1914
The Act specifies that commissioners can only be removed for inefficiency, dereliction in duty, or malfeasance in office, and not at the president’s discretion. However, some legal scholars argue that this statutory provision conflicts with Article II of the Constitution, which delegates executive power to the president alone and obliges the president to take care that the laws are faithfully executed. This, they argue, allows the president to fire FTC commissioners and employees of other executive agencies at will. - Humphrey’s Executor v. United States (1935)
In this case the Supreme Court ruled that the FTC Act’s restrictions on firing FTC commissioners were consistent with Article II of the Constitution and thus valid. The ruling was based on a finding that the FTC was not a predominantly executive agency, since commissioners performed quasi-judicial and quasi-legislative functions, and since their executive functions were collateral to these.
For example, FTC commissioners undertook investigations into corporations and issued reports to Congress to inform legislative reforms. Commissioners also applied laws to adjudicate disputes in a similar manner to courts. The Supreme Court thus held that these duties required commissioners to make impartial decisions, necessitating independence from the executive branch to avoid undue political influence. Though scholars debate the correctness of this ruling and though current Supreme Court justices have questioned it in their dicta, Humphrey’s Executor remains valid precedent and has not been overruled as of July 2025.
The ongoing debate from 1935 to today
- The expansion of the FTC’s enforcement powers.
Congress has amended the FTC Act to give commissioners powers and duties that are align more closely with executive power. - Modern authority
The FTC can now bring its own civil actions in federal court to obtain financial penalties for violations of the antitrust laws as well as the rules it promulgates. This marks a departure from 1935 when the agency could only issue cease-and-desist orders to antitrust violators following its internal antitrust adjudication process. The 1935 FTC could only apply to federal courts to enforce compliance with their own orders, a function deemed ancillary to the agency’s quasi-judicial adjudication process. - Constitutional implication
The Supreme Court may thus rule that the president can fire FTC commissioners at will under Article II of the constitution today since the modern FTC is arguably a predominantly executive body rather than a predominantly quasi-judicial or quasi-legislative one.
Sources:
- Humphrey’s Ex’r v. United States, 295 U.S. 602, 627 (1935).
- Seila L. LLC v. CFPB, 591 U.S. 197, 204 (2020) at 216.
- City of Arlington v. FCC 569 U.S. 290, 304 n.4 (2013).
- Daniel A. Crane, Debunking Humphrey’s Executor, 83 GEO. WASH. L. REV. 1835, 1838 (2015).
- Eli Nachmany, The Original FTC (February 01, 2025). 77 Alabama Law Review (forthcoming, 2025).
4. Monopolies
A monopoly is a market structure in which a single firm can raise and maintain product prices above the competitive level or reduce product quality below the competitive level while making higher profits than it would in a competitive market. Monopolies are not threatened by being undercut by existing or new rivals and therefore have the power to control prices while excluding competitors.
Monopolies harm consumers with higher prices, reduced output, less innovation, and lower product quality, as the monopolist can maintain its profitability without having to compete to serve consumers.
Sources:
- Thomas Krattenmaker, Robert H. Lande, and Steven C. Salop, “Monopoly Power and Market Power in Antitrust Law,” Georgetown Law Journal 76 (1987): 241.
A monopoly involves durable market power and competitive restraints. Market dominance, however, may exist in a competitive environment, as long as the firm continues to price its products or maintain the quality of those products while keeping in mind the threat of potential entry by new competitors.
A single firm that holds a dominant market share or maintains a dominant market position is sometimes colloquially branded as a monopoly, but this branding isn’t always accurate. Achieving or maintaining a dominant market share or position through greater efficiency, product differentiation, business acumen, or luck, is not considered an act of anticompetitive monopolization under US antitrust law.
A real-world example is Myspace, which was once considered a social media monopolist but lost market share as consumers shifted to Facebook and other platforms.
A firm might dominate the market due to better products or lower costs and still face the threat of new entrants. In this case the so-called monopoly is temporary and does not violate antitrust laws.
Sources:
- Marcel Caony, Patrick Rey, and Eric Van Damme, “Dominance and Monopolization,” The International Handbook of Competition 210 (2004).
- United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966).
- Thomas M. Jorde and David J. Teece, “Innovation, Dynamic Competition, and Antitrust Policy,” Regulation 13, no. 35 (1990) 37–38.
- Jonathan Barnett, “Illusions of Dominance?: Revisiting the Market Power Assumption in Platform Ecosystems,” Revisiting the Market Power Assumption in Platform Ecosystems,” USC CLASS Research Paper No. CLASS22-29, USC Law Legal Studies Paper 22–29 (2023).
Not necessarily—high profit margins can result from innovation, efficiency or high upfront investment, not just monopoly power.
While firms that sustain elevated profit margins are often labeled monopolists, consistently high margins may simply indicate a competitive edge for a unique product with high demand. Competing firms in industries like pharmaceuticals require high profit margins to recoup the substantial upfront costs of research, development, and regulatory approval. For example, the typical cost of bringing a new drug to market is over $1 billion. In such cases, strong profits may be a sign of market success, not market failure.
Sources:
- Oliver Wouters, Martin McKee, and Jeroen Luyten, “Estimated Research and Development Investment Needed to Bring a New Medicine to Market, 2009–2018,” Jama 323, no. 9 (2020): 844–53.
- J. Gregory Sidak and David J. Teece, “Dynamic Competition in Antitrust Law,” Journal of Competition Law and Economics 5, no. 4 (2009).
- Robert Bork and J. Gregory Sidak. "The misuse of profit margins to infer market power." Journal of Competition Law and Economics 9, no. 3 (2013): 511-530.
Monopolies can arise when firms block competitors or when regulations unintentionally protect dominant players.
Firms can become monopolies when they use anticompetitive tactics, such as inefficiently restricting their rivals’ market access or raising their entry costs, without any countervailing, procompetitive justification. Monopolies can also result from government regulations that impose high-cost barriers to entry on new entrants. Since larger, more established firms can more easily spread the fixed costs of regulatory compliance, large incumbents can lobby for cost barriers that disproportionately burden new, smaller entrants. This dynamic, known as regulatory capture, reduces competition, thereby contributing to the durability of monopolies and a firm’s ability to exercise monopoly pricing power.
Sources:
- Rosolino Candela, Vincent Geloso, and Germain Belzile, “Regulatory Capture and the Dynamics of Interventionism: The Case of Power Utilities in Quebec and Ontario to 1944.”
- Michael Cannon, “Market Concentration in Health Care: Government Is the Problem, Not the Solution,” Cato Institute Briefing Paper 139 (2022).
- Alden F. Abbott, “US Antitrust Laws: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2021).
A natural monopoly occurs when a single firm can serve a market more efficiently than multiple competing firms. The presence of a natural monopoly, however, doesn’t always mean competition is absent.
For example, a single company that maintains the electric grid in a particular region is often considered a natural monopoly, since it is most efficient for a single set of power lines to serve all households in the area. However, even in such cases, competition can still occur if the natural monopoly is awarded through a tender process that selects the most cost-efficient provider of sufficiently reliable and secure power. This form of competition is referred to as “for the market” rather than “in the market.” Natural monopolies may be subject to price regulation by the government to avoid anticompetitive or monopoly pricing outcomes.
Sources:
- Harold Demsetz, “Why Regulate Utilities?,” Journal of Law and Economics 11, no. 55 (1968).
- William Crain and Robert B. Ekelund, Jr., “Chadwick and Demsetz on Competition and Regulation,” Journal of Law and Economics 19, no. 1 (1976): 149-162.
- Jonathan Barnett, “The Case Against Preemptive Antitrust in the Generative Artificial Intelligence Ecosystem,” Artificial Intelligence and Competition Policy, eds. A. Abbott and T. Schrepel, Concurrences (2024), USC CLASS Research Paper 2419 (2024).
Market dominance—also called monopoly power—exists when a form can control prices or limit output without being challenged by competitors. It only violates antitrust law when that power is acquired or maintained through unfair methods.
Here’s how it works under US antitrust law:
- Monopoly power means a firm has both a substantial share of the market and high entry barriers that prevent other companies from entering.
- Dominating a market or holding monopoly power is not illegal by itself. A firm can legally achieve dominance by practicing “competition on the merits,” that is, by offering better business products, or having superior business acumen, skill, efficiency, or luck.
- It becomes illegal under Section 2 of the Sherman Act when a firm excludes rivals from competing. This is known as “exclusionary conduct” or “monopolization”.
- Monopolist firms normally are not obligated to help rivals, but if they exclude rivals or make it more difficult for them to compete, the firms must justify their actions (e.g., by showing efficiency gains or pro-competitive effects).
Sources:
- Satya Marar, “Artificial Intelligence and Antitrust Law: A Primer” (Mercatus Policy Brief, Mercatus Center at George Mason University, 2024).
- Verizon v. Trinko, 540 U.S. 398 (2004).
- United States v. Grinnell Corp., 384 U. S. 563, 570–571 (1966).
- Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).
- “Anticompetitive Practices,” Federal Trade Commission, accessed March 20, 2025.
In 2024, a federal court ruled that Google violated antitrust law by illegally maintaining its monopoly in online search through exclusionary agreements.
The court found that Google had first acquired monopoly power legally by offering a superior search engine that it used to amass search indexation data from a large pool of users, allowing Google to improve its search engine relative to competitors. This is an example of competition on the merits, which is not unlawful.
However, the court also found that Google violated antitrust law by illegally maintaining its monopoly through agreements that made it the default search engine on various web browsers. These agreements were deemed exclusionary because they made it harder for rival search engines to achieve a comparable user base.
Google has announced plans to appeal the verdict, arguing that the agreements are procompetitive and serve a legitimate business purpose.
Sources:
- United States, et al. v. Google LLC, Memorandum Opinion, Case No. 20-cv-3010 (APM) (D.D.C., Aug. 5, 2024).
- Auer & Manne, "A Critical Analysis of the Google Search Antitrust Decision" 14 August 2024, ICLE White Paper 2024-08-14.
“Monopoly broth” refers to a legal theory where a combination of otherwise lawful business practices, when taken together, may harm competition.
In antitrust cases, plaintiffs may argue that while each action by a monopolist may appear legal on its own, the cumulative effect of these actions violates Section 2 of the Sherman Act. Courts are cautioned not to evaluate each practice in isolation but to consider their combined impact on competition.
Sources:
- Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 698–99 (1962).
- City of Mishawaka, Ind. v. Am. Elec. Power Co., Inc., 616 F.2d 976, 986 (7th Cir. 1980).
- US Department of Justice (DOJ) (2023). Complaint, filed January 24, in the United States District Court for the Eastern District of Virginia, Alexandria Division, United States of America, U.S. Department of Justice, Commonwealth of Virginia, State of California, State of Colorado, State of Connecticut, State of New Jersey, State of New York, State of Rhode Island, and State of Tennessee, Plaintiffs, v. Google LLC, Defendant, at 263.
Exclusive dealing and tying or bundling cases often involve cumulative effects that courts must evaluate.
In these cases, a monopolist may use a series of contracts or contract terms that, while lawful individually, collectively foreclose a significant share of the market to competitors. Courts assess whether the combined impact of these agreements amounts to exclusionary conduct that violates Section 2 of the Serman Act by illegally maintaining a monopoly.
Sources:
- Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 698–99 (1962).
- Conwood v. United States Tobacco Co. 290 F.3d 768 (6th Cir. 2002).
Monopoly broth theory faces skepticism because it may blur the line between lawful and unlawful conduct.
Critics argue that some plaintiffs use monopoly broth theory to present a mix of legal but unattractive business practices to juries, rather than proving than any one act violates antitrust law. This can sidestep the usual burden of proof required to show that a single practice is anticompetitive on the merits.
Courts have recognized the following dangers:
- Falsely suggesting anticompetitive conduct through pooling multiple lawful practices, and
- Proscribing procompetitive conduct by pooling it with one or more single instances of illegal, anticompetitive conduct.
As a result, monopoly broth cases are difficult for plaintiffs to win.
Sources:
- City of Anaheim v. S. Cal. Edison Co., 955 F.2d 1373, 1378 (9th Cir. 1992).
- Tele Atlas N.V. v. NAVTEQ Corp., 2008 WL 4911230, (N.D. Cal. Nov. 13, 2008).
Courts can balance valid monopoly broth claims with the need to protect pro-competitive business practices and acquisitions by applying clear legal tests and limiting overreach.
To achieve this, the courts should do the following:
- Require plaintiffs to present a clear, evidence-backed theory explaining how the combination of individual conduct harms consumers. See, e.g., City of Groton v. Conn. Light & Power Co., 662 F.2d 921, 929 (2d Cir. 1981); Northeastern Telephone Co. v. AT&T 651 F.2d 76 (2d Cir. 1981).
- Tailor remedies narrowly to address the specific alleged anticompetitive harms.
- Apply established legal tests for specific conduct (e.g., predatory pricing) before allowing instances of that conduct to be incorporated into a “monopoly broth” claim. Each “ingredient” in the monopoly broth should show independent anticompetitive effect.
- Prevent plaintiffs from including lawful business practices in their claim. These might include the following:
- technological innovations that foster product improvements
- above-cost price discounting or non-predatory price cuts, and
- unilateral and unconditional refusals to deal with rivals.
By following these principles, courts can ensure that monopolists do not escape liability for anticompetitive conduct carried out through multiple acts or business practices, while also preventing plaintiffs from misusing monopoly broth theories to avoid having to carry their legally required burden of proof.
Sources:
- United States of America v. Microsoft Corporation, 253 F.3d 34 (D.C. Cir. 2001).
- Daniel A. Crane, “Does Monopoly Broth Make Bad Soup?,” Antitrust Law Journal 76, no. 663 (2010).
- Phillip E. Areeda and Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application, §310c (3d ed. 2008).
- Christopher Yoo, Ian Simmons, Doug Melamed, Bonny Sweeney, and John Roberti, "Best Practices for Trying a Section 2 Case,” American Bar Association Antitrust Magazine, (Fall 2023): 21–34.
- J. Thomas Rosch, “Evolution of Exclusive Dealing Law,” The Sedona Conference Journal 7, no. 51 (2006): 56.
5. Mergers and Acquisitions
Mergers and acquisitions can either enhance or reduce competition, depending on how they change market structure, the incentives that market participants or potential entrants face, efficiency, and consumer outcomes.
Mergers and acquisitions can boost competition by creating more efficient, innovative, or capable post-merger firms that better serve consumers and that represent a greater threat to its rivals than the individual firms did before the merger.
Some of the ways mergers improve competition are listed below:
- Economies of scale
A merged firm can lower its per-unit production costs because it is larger and can therefore distribute those costs over a larger entity than each of its components can. Consumers benefit through lower prices.
Example: Two merged shipping companies (or an e-commerce firm that acquires a shipping company) may reduce per-item shipping costs through larger shipping volumes, ultimately lowering prices for consumers. - Combining complementary strengths
Mergers can bring together the unique and complementary strengths of each individual firm, thereby creating a cost-effective solution for any deficiencies in the pre-merger firms.
Example: A small pharmaceutical start-up may have research talent and hold a patent for a valuable new drug, but it may lack the resources, relationships, and expertise to navigate the expensive regulatory approvals process at the Food and Drug Administration (FDA). A larger, more established company may have the resources, expertise, and relationships with the regulating agency, but would benefit from bringing in in-house research talent and boosting its existing portfolio of drug patents to address a new illness. A merged company can bring the drug to market faster, benefiting patients and increasing competition. - Faster market entry
Acquiring an established company may be quicker and more efficient than building a business from scratch. The acquired firm typically already has a marketable product and efficient production infrastructure. As a result, the merger can create a stronger, more efficient competitor that can enter the market quickly—something that may not have been possible without the acquisition.
Example: Amazon acquired Whole Foods in 2017, allowing for the retail and e-commerce giant’s rapid entry into the brick-and-mortar grocery store business. - Better asset allocation
A business may sell off its assets or an entire business line to an acquiring firm, or it may use a merger as an opportunity to make better use of an existing underperforming asset.
Example: An American company shifting its business strategy away from the Chinese market might sell its Chinese subsidiary to another firm, allowing itself to redeploy resources and reduce costs in other markets. At the same time, selling the Chinese subsidiary to a firm that can use it more effectively would keep the business operating and competing in the markets it already serves, rather than shutting it down. Instead of representing “one party’s loss” and “another’s gain,” such a transaction can be mutually beneficial and the outcome procompetitive. Both firms potentially become more effective competitors in their respective markets.
Mergers can harm competition when they reduce the number of rivals and increase market power in ways that hurt consumers.
Here are some ways mergers may hinder competition:
- Reduced head-to-head competition: A horizontal merger between two or more competing firms reduces the number of competitors in a market, potentially weakening the pressure to keep prices low. With fewer rivals, the remaining firms may face less incentive to offer competitive prices. However, this effect may be limited if higher prices or reduced output by the merged firm creates opportunities for new market entrants seeking to profit by undercutting it.
Example: If the only two supermarkets in a town were to merge, and the resulting firm raised prices to boost its profit margins, it might create an opportunity for a new supermarket to enter the town and attract customers dissatisfied with the higher prices. Thus, competitive pressure against raising prices would not simply disappear after the merger.
Sources:
- Baumol, William J. “Contestable markets: an uprising in the theory of industry structure,” American Economic Review 72(1) March 1982, pp. 1–15.
“Killer acquisitions”: See below.
Killer acquisitions occur where an incumbent firm acquires a rival in order to shut down the rival’s product or innovation, or “kill it off,” thereby reducing future competition.
This strategy can harm consumers by allowing the acquiring form to keep prices high and avoid investing in creating, launching, or improving better products.
While some high-profile studies have suggested that killer acquisitions are widespread—especially in pharmaceuticals—many experts believe such cases are rare.
A landmark study asserting the widespread existence of killer acquisitions in the pharmaceutical sector has faced criticism. In many cases, when a pharmaceutical company acquires another and discontinues an overlapping drug, the motivation may be efficiency, not killing off a would-be competitor.
For example, eliminating duplicative drugs can reduce costs and free up resources for more promising projects, such as developing treatments for other illnesses.
Critics also note that killer acquisitions are less plausible as a long-term, profitable strategy in other industries, such as software or digital services. In tech, discontinued products are often easy for competitors to replicate without infringing on intellectual property laws than, say, pharmaceutical drugs that are typically protected by patent and are harder to “innovate around” without infringing the patent.
Sources:
- Colleen Cunningham, Florian Ederer, and Song Ma, “Killer acquisitions,” Journal of Political Economy 129, no. 3 (2021): 649–702.
- William Rinehart, “Are ‘Killer Acquisitions’ by Tech Giants a Real Threat to Competition?,” (Research in Focus, The Center for Growth and Opportunity at Utah State University, Washington, DC, October 2023).
- Jonathan Barnett, “Killer Acquisitions” Reexamined: Economic Hyperbole in the Age of Populist Antitrust,” The University of Chicago Business Law Review 3, no. 1 (2024): 2.
A merger is considered illegal under Section 7 of the Clayton Act if it may substantially lessen competition or tend to create a monopoly.
This happens when the merged firm would gain the incentive and ability to harm consumers or rival firms, for example by raising prices without being undercut by its competitors. Anticompetitive harm can result from the post-merger firm’s unilateral conduct (acting alone regarding price hikes or exclusive dealing) or coordinated effects (making it easier for remaining forms to collude or align behavior).
Sources:
- Clayton Act Section 7; U.S. Department of Justice & the Federal Trade Commission, Merger Guidelines (Dec. 18, 2023).
- California v. Am. Stores Co., 495 U.S. 271, 284 (1990) (quoting 15 U.S.C. § 18 with emphasis) (citing Brown Shoe, 370 U.S. at 323).
- Ann Kreuscher, “The Black Box: The FTC's New Ability and Incentive Test for Vertical Mergers,” forthcoming St. Mary’s Law Journal 57 (2024).
A horizontal merger involves two direct competitors, while a vertical merger combines firms at different stages of the supply chain.
Many mergers have both vertical and horizontal aspects.
Horizontal mergers
- Occur between companies that compete head-to-head in offering the same or similar products or services.
- Directly reduce the number of competitors in a market.
- More likely to raise antitrust concerns due to loss of head-to-head competition.
Vertical mergers
- Involve companies at different levels in the supply chain (e.g., a manufacturer and a distributor).
- Generally considered less likely to harm competition, because they don’t eliminate direct rivals.
- Can improve efficiency by
- Reducing the need for external contracts
- Eliminating double marginalization (successive anticompetitive markups by separate firms)
A vertical merger may still be anticompetitive and therefore illegal if it forecloses competition from rivals, such as by restricting their access to a key production input without a legitimate business purpose.
Sources:
- Memorandum Opinion of Judge Richard J. Leon in United States v. AT&T and Time Warner, June 12, 2018.
- Memorandum Opinion of Judge Richard J. Leon in United States v. CVS and Aetna, September 4, 2019.
- Alden Abbott, Reforming the Federal Trade Commission, Mercatus Center Policy Brief (2023).
Double marginalization occurs when two firms in a supply chain each add their own markup, thereby leading to higher prices for consumers and reduced profits for the firms than would have been achieved by a single vertically integrated chain.
Vertical integration, such as a firm merging with a supplier, can eliminate double marginalization by reducing the aggregate markup. Consumers benefit when these savings are passed on to them through lower prices or subsidies to other parts of the business, such as research and development. In a nutshell, eliminating double marginalization allows the integrated firm to maximize its profits at a lower selling price point than the two firms operating separately in the production and distribution chain for the good.
Sources:
- Alden Abbott, Reforming the Federal Trade Commission, Mercatus Center Policy Brief (2023).
6. Digital Markets and Big Tech
Tech giants raise antitrust concerns because certain features of digital platforms — such as scale advantages, network effects, and high switching costs — can make it difficult for smaller competitors to enter or thrive in their markets. However, not all dominance is due to anticompetitive behavior.
Key features that raise red flags for enforcers
- Economies of scale: Large platforms can offer lower prices by spreading fixed costs across larger customer base or production volume.
For example, Amazon fulfills a large volume of orders, allowing it to lower per-unit shipping costs through bulk shipping. - Network effects: The value of a platform increases as it attracts more users. Incumbent digital platforms may thus have an advantage over newer or smaller competitors.
For example, Facebook’s and Instagram’s growth accelerated as the number of users increased, since individuals tend to want to create social media accounts on platforms where their friends and family are already active. Similarly, Google maintains a superior search engine by constantly refining its results through feedback and query data from a large user base, which gives it an advantage over rival search engines with a smaller user base. - Switching costs: Users incur costs by switching from one service to another.
For example, migrating to a smaller or new social media platform might mean foregoing contact with friends and family who do not also migrate. Switching also imposes costs in time and effort needed to set up and customize a new account.
When dominance does not equal harm
The presence of the key features of digital platforms does not necessarily indicate that a tech giant has acquired or maintained its position by anticompetitive means, or even that it continues to be powerful for reasons other than providing a superior product.
For example, a superior algorithm allowed start-up OpenAI’s ChatGPT to maintain its dominance over rival generative AI products and foundation models from tech giants such as Google (Gemini) and Meta (LLaMA), despite Google’s and Meta’s possession of greater economies of scale and data network effects from their large user bases. Google and Meta also achieved their dominant market positions in search and social media, respectively, despite having faced competition from larger incumbent firms providing the same services at their inception. Yahoo’s search engine predates Google, and Myspace was the dominant social media platform prior to Facebook. These examples show that a superior algorithm, user experience, or other features may play a greater role in a company’s competitive advantage in these markets than economies of scale, network effects, or switching costs.
Enforcement must avoid unintended harm
Even if a tech giant or digital platform is found to have engaged in illegal anticompetitive conduct, care must be taken to ensure that any penalty or remedy does not inadvertently undermine competition by reducing the value of the service to consumers.
For example, “breaking up” Amazon would create multiple, less-efficient companies that bear higher shipping costs by destroying Amazon’s scale economies.
Sources:
- Satya Marar, “Artificial Intelligence and Antitrust Law: A Primer” (Mercatus Special Study, Mercatus Center at George Mason University, 2024).
- Jonathan Barnett, “The Case Against Preemptive Antitrust in the Generative Artificial Intelligence Ecosystem,” Artificial Intelligence and Competition Policy (A. Abbott and T. Schrepel eds.), Concurrences (2024), USC CLASS Research Paper 2419 (2024).
- Jonathan Barnett, “Illusions of Dominance?: Revisiting the Market Power Assumption in Platform Ecosystems,” Revisiting the Market Power Assumption in Platform Ecosystems, USC CLASS Research Paper No. CLASS22-29, USC Law Legal Studies Paper 22-29 (2023).
- Dirk Auer and Geoffrey Manne, “On the Origin of Platforms: An Evolutionary Perspective” (Mercatus Working Paper, Mercatus Center at George Mason University, October 1, 2024).
- United States, et al. v. Google LLC, Memorandum Opinion, Case No. 20-cv-3010 (APM) (D.D.C., Aug. 5, 2024).
- United States of America v. Microsoft Corporation, 253 F.3d 34 (D.C. Cir. 2001).
Antitrust action can have positive or negative effects depending on how the remedy is structured. Narrow remedies tend to preserve innovation, efficiency, and choice, while broad structural changes, while easier and less costly to administer, carry higher risks of unintended consequences.
Antitrust courts generally prefer narrowly tailored remedies that prevent future anticompetitive conduct while minimizing the risk of unintended side effects that could harm competition, rather than blunt and wide-reaching penalties.
An injunction against a firm’s anticompetitive conduct, or a contractual commitment to cease such practices, is typically the least restrictive way to prevent future violations of the law. Obtaining a contractual commitment from the firm to avoid specific anticompetitive conduct can preserve the consumer benefits that helped it gain market share and leave consumers with the choice to continue relying on them, while also preventing the firm from abusing its monopoly power. However, this approach may require enforcement agencies or courts to monitor the firm’s ongoing conduct.
By contrast, broader and more extreme remedies, such as breaking up the firm or forcing it to share proprietary technology or resources with its rivals, carry greater risk. These measures can impose significant and often unpredictable future costs that could outweigh their benefits. They may also compromise property rights and represent the most intrusive forms of government intervention in the market.
For these reasons, courts generally consider structural remedies as a last resort and use them only when narrower remedies or future market developments and innovation are unlikely to resolve the anticompetitive conduct.
Breaking up large digital firms may reduce market dominance, but it also risks lowering service quality, weakening privacy protections, and reducing innovation.
- Breaking up firms can destroy beneficial efficiencies: Even if a large tech platform is found to have engaged in illegal anticompetitive conduct, a structural breakup could unintentionally harm competition by reducing the value of the service for consumers. For example, breaking up Amazon might create smaller, less efficient companies with higher shipping costs by eliminating the scale economies that benefit consumers. Likewise, forcing the owner of a digital platform (such as an operating system) to divest one or more of its integrated applications might give other firms access to develop those tools, but it would also reduce the utility and seamless integration of the original ecosystem, ultimately harming the user experience.
- Consumer privacy and data security could be negatively impacted: If firms holding sensitive data are broken up, then their former divisions that hold data may be acquired by rivals who lack equivalent safeguards or resources to protect it. Consumer privacy and data security may thus be harmed.
- Breakups can reduce consumer choice without necessarily increasing competition: Markets — especially those that are fast-evolving and dynamic like tech — often self-correct through innovation, making monopolies or dominant models obsolete over time. While an injunction preserves the consumer’s choice to patronize the existing firm or its current or future rivals, a structural breakup eliminates that choice while not necessarily replacing the previous firm with multiple alternatives that can deliver better, lower-cost products.
Interoperability mandates are rules or court judgments that force firms to share proprietary technology, resources or access to proprietary platforms with their rivals or third parties. Data portability is a similar concept and refers to platforms allowing users or third parties to move data freely between their platform and others. These mandates may be imposed as an antitrust remedy as they may resolve concerns that a firm is illegally raising its rivals’ costs through exclusionary conduct that entrenches their monopoly power. A firm may also voluntarily concede to an interoperability rule to settle antitrust litigation,
For example, the DOJ has requested that a federal district court require Google to share its search indexing data with rival search engines to address a ruling that Google engaged in illegal monopolization of the search market. Requiring Apple to make their App store accessible to independent developers at terms other than those negotiated between Apple and the developers would be another example.
Interoperability or data portability mandates come with potential pros and cons
- Forcing firms to share proprietary technology with rivals can encourage short-term competition, but at the cost of long-term innovation
For example, requiring Google, a monopolist in the general search engine market, to share its indexing data might help competitors improve their search engines and increase pressure on Google in the short term. However, this requirement could discourage firms from investing in obtaining superior search data and could thus lead to lower quality digital products in the years to come. Firms that independently develop better tools may struggle to attract capital investment if the investors’ returns can be diluted through mandatory sharing. Over time, mandatory sharing could reduce innovation. - Forcing firms to share access to a platform can reduce the value of the user experience or ecosystem of services that the platform provides
Platforms may restrict access to third parties in order to preserve a certain user experience or standard of services on the platform. For instance, Apple appeals to users through the purported security features of its products, including the operating system and app store. If Apple was forced to give app store access to third party developers that do not meet its security standards, then the purported security standards of the app store or iOS products themselves could be compromised. - Consumer privacy and data security could be negatively impacted
If firms holding sensitive data are forced to share it with rivals who lack equivalent safeguards or resources to protect it, then consumer privacy and data security would be harmed.
For these reasons, such mandates should only be considered where more targeted relief such as an injunction against specific anticompetitive conduct, would be insufficient to resolve antitrust violations. Conversely, interoperability or data portability mandates or agreements are easier to implement than structural breakups of firms, and entail less collateral damage to consumer choice, competition and innovation. Interoperability or data portability mandates also preserve beneficial platform networks that would be destroyed by a structural breakup.
Sources:
- Verizon Communications Inc. v. Trinko, 540 U.S. 398 (2004).
- Herbert Hovenkamp, “Structural Antitrust Relief Against Digital Platforms,” Journal of Law and Innovation 7 (2024): 57.
- Michael McLaughlin and Daniel Castro, “Breaking Up Big Tech Would Not Make Consumer Data More Secure,” Information Technology and Innovation Foundation (April 2019).
- Bertin Martens, “The Impact of Search Engine Data Sharing on Competition and Consumer Welfare,” European Competition Journal 20, no. 2 (2024): 537–54.
- Tracy Miller, “Should the DOJ Be Trying To Take a Bite out of Apple?” Discourse Magazine, April 17, 2024.
7. Market Structures and Measurement
A firm’s market concentration refers to how much market share the firm holds for a good or service, usually within a geographic area. It is often used to assess a firm’s level of competition and potential for monopoly power and is commonly measured using the Herfindahl-Hirschmann Index (HHI).
- A large, sustained market share may reflect a firm’s superior product, business skill, or even luck, which may be consistent with a competitive market. However, if market concentration results from anticompetitive practices that block rivals from entering the market, or from government-imposed barriers, such as licenses, taxes, or regulatory capture, then antitrust action or deregulation may be needed to restore competition and protect consumers.
-
For example, in its 1983 antitrust case against telecom giant AT&T, the Department of Justice accused the firm of abusing its government-granted natural monopoly over national telecommunications. Allegations included
- overcharging consumers for long distance phone calls
- blocking devices from other firms from connecting to its landline network, and
- favoring telecommunications equipment produced by its own subsidiary over competing manufacturers.
The case was settled when AT&T agreed to divest its regional divisions. This breakup effectively deregulated the national monopoly and created a more competitive market for phone service, cable TV, and computer networks.
- The HHI (Herfindahl Hirschman Index) is a widely accepted way to measure market concentration. It is calculated by squaring the market share of each firm competing within the market and adding up the resulting numbers. For instance, where a market consists of four firms with shares of 30%, 30%, 20%, and 20%, the HHI would be 2600 (302 + 302 + 202 + 202 = 2,600).
- The HHI increases as the number of firms in a market decreases and as the differences in firm size grow. It approaches zero when a market includes many forms of roughly equal size and reaches a maximum of 10,000 when a single firm controls the entire market.
Sources:
- U.S. Department of Justice, Herfindahl Hirschman Index, (Accessed: April 3rd, 2025).
- United States v. Grinnell Corp., 384 U. S. 563, 570–571 (1966).
- United States v. American Tel. and Tel. Co., 552 F. Supp. 131 (D.D.C. 1983).
- Richard Langlois, "Memes and Myths of Antitrust." Network Law Review (2024): 1-16.
- Dan Gallagher, "Was AT&T Guilty?: A critique of US v AT&T." Telecommunications Policy 16, no. 4 (1992): 317-326.
- William Pribis, (Fall 1994) "Telephone Company Entry into the Cable Television Market: The Clash between the First Amendment and the Laws and Procedures of Antitrust Enforcement". Suffolk University Law Review. 28 (3): 715–746.
- Jennifer Rand, (1991) "AT&T Consent Decree Revisited: Setting the Stage to Free the Baby Bells". George Washington Law Review. 59 (5): 1103–1144.
8. Labor and Employment
Antitrust laws don’t just apply to product markets — they also protect competition in labor markets.
While most antitrust cases involve pricing, output, or market share, certain agreements, business practices, or mergers can be illegal under antitrust law if they reduce or are likely to reduce competition among employers for workers. When firms suppress wages or limit job mobility through non-compete clauses, wage-fixing agreements, or mergers that reduce hiring options, consumers may ultimately be harmed through higher prices or lower-quality goods and services due to a less productive workforce.
Sources:
- Nat’l Collegiate Athletic Ass’n v. Alston, 594 U.S. 69 (2021).
- Mandeville Island Farms v. Am. Crystal Sugar Co., 334 U.S. 219 (1948).
- Anderson v. Shipowners’ Ass’n of Pac. Coast, 272 U.S. 359 (1926).
- Memorandum opinion, United States v. Bertelsmann SE & Co. KGaA, Penguin Random House, LLC, ViacomCBS, Inc., and Simon & Schuster, Inc., No. 21-cv-02886 (D.D.C. October 31, 2022).
Antitrust law prohibits certain employer behaviors that reduce competition for workers. Common examples include the following:
- Non-solicitation, no-poach, or no-hire agreements: When employers agree not to recruit or hire each other’s employees, it can violate Section 1 of the Sherman Act, which bans unreasonable restraints of trade.
- Wage-fixing agreements: Agreements between employers to set or cap employee wages are considered per se illegal under the Sherman Act.
- Labor market monopsony: A monopsony occurs when one of more firms act together to exercise significant buyer power in labor markets. It is illegal for businesses to acquire or maintain this position through anticompetitive means, such as suppressing wages in violation of the Sherman Act, or engaging in illegal, anticompetitive mergers in violation of Section 7 of the Clayton Act. Monopsony can also harm competition in product markets by deterring workers from entering into labor markets through suppressing their wages, thereby reducing employment below efficient levels and misallocating resources. This may harm consumers through more expensive or inferior quality goods and services.
- Certain union activities: See below.
Sources:
- Chairman Andrew Ferguson, Federal Trade Commission Memorandum: Directive Regarding Labor Markets Task Force (February 26, 2025).
- U.S. Department of Justice and the Federal Trade Commission, Antitrust Guidelines for Business Activities Affecting Workers (January 2025).
- Suresh Naidu and Eric Posner, Labor Monopsony and the Limits of the Law (2022) Journal of Human Resources, 57(S), S284-S323.
- Ioana Marinescu and Eric Posner, A Proposal to Enhance Antitrust Protection Against Labor Market Monopsony (December 21, 2018).
- Memorandum opinion, United States v. Bertelsmann SE & Co. KGaA, Penguin Random House, LLC, ViacomCBS, Inc., and Simon & Schuster, Inc., No. 21-cv-02886 (D.D.C. October 31, 2022).
Yes — under certain conditions. U.S. law provides labor organizations with limited exemptions from antitrust liability, primarily through the Clayton Act and the Norris-LaGuardia Act.
- Sections 6 and 20 of the Clayton Act, along with the Norris-LaGuardia Act, create a legal exemption for union activity that arises from disputes over wages and working conditions.
- Antitrust laws cannot be used to enjoin labor activities arising out of disputes regarding wages and other employment conditions unless the activities are unlawful and an injunction is needed to prevent sustained and irreparable harm to property.
- Worker strikes, boycotts, and collective bargaining agreements with employers to set their workers’ wages are explicitly lawful under the Norris-LaGuardia Act and are thus shielded from antitrust liability.
- However, to rely on the Clayton Act and Norris-LaGuardia Act antitrust exemptions, unions must be acting in their own self-interest. They may also be held liable for anticompetitive activities executed in conjunction with non-labor groups.
- For example, a union cannot agree with a group of employers to impose wage conditions on other employers, as this would make the union party to the employers’ conspiracy to eliminate or reduce competition.
Sources:
- Federal Trade Commission, Enforcement Policy Statement on Exemption of Protected Labor Activity by Workers from Antitrust Liability (January 2025).
- Jacalyn Zimmerman (1976). Congress and the Court at Cross Purposes: Labor's Antitrust Exemption. Loyola University Chicago Law Journal, 7(3), 782.
- United States v. Hutcheson, 312 U.S. 219, 232 (1941); United Mine Workers v. Pennington, 381 U.S. 657 (1965).
9. Intellectual Property and Antitrust
Intellectual property rights, such as copyrights and patents, gives holders legal tools to control access to technologies, which can benefit innovation but may also raise antitrust concerns in certain cases.
Secure IP rights, including the right to exclude others, generally benefit consumers and competition through providing incentive to innovators to invest time, energy, resources and creativity in developing new products that may otherwise not exist, and to bring them to market. Some of the ways in which secure and enforceable IP rights benefit competition and consumers include:
- Fostering access to capital
Innovation and research-based startups need capital to overcome the costs of introducing their technology and products into markets and challenging incumbents. Secure IP rights for products and technology thus foster competition by allowing these firms to attract investment as investors have greater certainty that they can obtain returns. - Fostering business partnerships by incentivizing knowledge sharing
IP rights (including patents and copyright) give innovators certainty that they can share their knowledge and technology with external partners without the risk that their ideas will be stolen and exploited. This allows for the development of ideas or prototypes into finished products and allows for the building of production and distribution chains necessary for consumers to access the products. - Discouraging concentrated markets
If parties that hold innovative technology cannot exclude others from appropriating and practicing the technology, then they may have to acquire or vertically integrate with other businesses to bring products to market while retaining their knowledge as a trade secret. This can lead to higher costs of entry that disproportionately impact smaller firms, leading to more concentrated markets. This, in-turn can give incumbents more market power to harm consumers by increasing prices or restricting output.
It is thus crucial that antitrust enforcers consider how their enforcement actions or remedies are likely to affect the use or exchange of IP, and the realization of the IP’s concomitant benefits to competition, innovation and consumers.
Conversely, since the right to exclude and license gives IP holders the ability to raise prices and thereby restrict their competitors’ access to their IP, there are certain cases where a merger may raise anticompetitive concerns around facilitating monopolization through exclusionary conduct.
These are examples of IP-related conduct that may raise antitrust concerns:
- IP-based mergers that reduce competition
A firm that holds key IP might acquire a rival with competing technology, limiting consumer choice and innovation in that tech market. - Tying or bundling of patented inputs
A firm may use its IP to require customers to purchase another product in order to access the patented input. If such terms would not be accepted in a competitive market, and where the arrangement affects a significant volume of interstate commerce in the tied product market, the firm may be violating antitrust law. As a practical matter, however, tying theories of antitrust harm are not highly regarded by the courts, and the courts often apply the rule of reason in such cases, taking into account efficiency justifications.
Sources:
- Jonathan Barnett (2021) “Innovators, Firms, and Markets: The organizational logic of intellectual property,” Oxford University Press.
- Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 12-8 (1984).
- U.S. v. Microsoft Corp., 253. F. 3d 54 (D.C. Cir. 2001).
Antitrust courts and the Supreme Court have recognized that mere possession of a patent or other IP instrument does not confer a market power on the holder. This is because
- Most patents do not yield commercially valuable technologies, inventions, or inputs.
- It is often possible to substitute even IP-protected inputs with substitutes from competitors or through independent innovation.
- It is very rare in practice for a specific input to be an “essential facility” for doing business, due to the substitutability of alternatives.
For instance, it is often possible to innovate “around” patented software though differentiation or coding workarounds that replicate key aspects of its functionality. By contrast, patented pharmaceuticals often are difficult to substitute or work around without violating the patent, since the patented technology is generally very specific to the medical issue it treats, or for the appropriate or best manner of treatment for the applicable class of patients. Mergers may thus be more likely to attract scrutiny from competition and antitrust enforcers where they involve acquisition of key pharmaceutical patents relative to those involving acquisition of software patents.
Sources:
- Illinois Tool Works, Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006).
- Wesley Austin, "Software Patents." Texas Intellectual Property Law Journal 7 (1998): 225.
- Congressional Research Service, Drug Pricing and Pharmaceutical Patenting Practices (2020); William Rinehart, “Are ‘Killer Acquisitions’ by Tech Giants a Real Threat to Competition?,” (Research in Focus, The Center for Growth and Opportunity at Utah State University, Washington, DC, October 2023).
- John Allison, Mark A. Lemley, Kimberly A. Moore, and R. Derek Trunkey, "Valuable patents." Geo. Lj 92 (2003): 435; Verizon Communications Inc. v. Trinko, 540 U.S. 398 (2004).
While patents grant temporary exclusivity, they often promote long-term competition by encouraging innovation.
Patents and other intellectual property (IP) rights give inventors time-limited control over their creations. This exclusivity helps firms recover the high costs of research, development, and commercialization—especially in industries like pharmaceuticals.
Example: Billions of dollars are typically spent on researching, developing, and bringing new pharmaceuticals to market, and research estimates that for some patented drugs, sales capture only a small fraction of the societal benefit created by the drug.
Disclosure benefit: To secure a patent, the applicant must publicly publish it, allowing competitors (such as generic drugmakers) to replicate the technology at the end of the patent life, which would not be possible if the patent right did not incentivize the creation of the technology or drug in the first place.
Aggressive antitrust enforcement and expensive litigation that devalues IP rights or restricts the ability of owners to rely upon their IP rights can discourage investment in new technologies. These actions may reduce long-term innovation—potentially harming competition and consumers more than they help by lowering short-term access costs for competitors.
Sources:
- Verizon Communications Inc. v. Trinko, 540 U.S. 398 (2004).
- Richard Gilbert and Carl Shapiro, “Optimal Patent Length and Breadth,” The RAND Journal of Economics 21, no. 1 (Spring, 1990): 106–112.
- Joseph A. DiMasi, Henry G. Grabowski, and Ronald W. Hansen, “Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs,” Journal of Health Economics, vol. 47 (May 2016), pp. 20–33.
- Tomas Philipson and Anupam B. Jena, “Surplus Appropriation from R&D and Health Care Technology Assessment Procedures,” NBER Working Papers No. 1 (2016).
Usually not. While patents give owners exclusive rights, this rarely leads to antitrust violations on its own.
In general, U.S. antitrust law allows patent holders to refuse to license their intellectual property, including on a unilateral and conditional basis. Several safeguards prevent a patent owner from unfairly controlling the market:
- Disclosure: Patent applications are public, enabling competitors to innovate “around” the patent without infringing it.
- Expiration: Patents eventually expire, ensuring that manufacturers are eventually free to replicate the patented invention without paying royalties to the inventor or patent owner. Conversely, there may be no product for them to replicate were it not for the patent right having allowed the original inventor to recoup its research investment.
- FRAND commitments under Standard Essential Patents (SEPs): SEPs are recognized by standards-setting organizations (SSOs) as necessary for compliance with a particular technological standard and must be licensed on Fair, Reasonable and Non-Discriminatory (FRAND) terms once adopted into widely used technical standards. FRAND terms allow SSOs to revoke a patent’s SEP status or to penalize SEP owners for failing to meet FRAND terms. In the telecommunication industry, for example, multiple telecommunication SEPs must be incorporated into products to qualify under 5G or 6G standards, and manufacturers must thus pay royalties to the owners of these SEPs to license them, using FRAND terms, rather than choosing alternative technologies.
There are limited scenarios where a patent owner may exercise unfair, illegal, or anticompetitive control over a market.
- Reverse payments
- A patent holder may illegally pay a generic drugmaker to delay market entry. These deals may violate the Sherman Act if they're unjustified and delay competition.
- FRAND abuse by SEP owners
SEP owners may violate antitrust law by these actions:- Failing to meet FRAND commitments, thereby unlawfully obtaining monopoly power in violation of Section 2 of the Sherman Act
- Failing to license on FRAND terms, if the refusal allows the SEP holder to obtain or maintain market power in a market that the implementer does or would otherwise compete in
- Refusing access to critical technologies
- Entering exclusive licensing deals that block rivals
Courts consider these cases carefully. Not all high licensing fees are antitrust violations—some may be better addressed through contract law, especially when parties dispute whether terms are "reasonable."
SSOs and implementers might be held liable for engaging in unreasonable restraints of trade that violate Section 1 of the Sherman Act, if they facilitate agreements to impose anticompetitive licensing restrictions that limit the ability of SEP holders to obtain a reasonable return to their patents.
It is also noted that both an SEP holder’s intentional failure to meet FRAND commitments that they made to an SSO, as well as their charging of a price to licensees that potentially exceeds what could be considered “fair and reasonable” under the circumstances, can be prosecuted under contract law.
Overzealous antitrust action can backfire: If firms believe their patented innovations will be forcibly shared or penalized, they may avoid investing in R&D.
Overuse of antitrust lawsuits against SEP holders could have the following effect:
- Unfairly shift bargaining power toward licensees
- Discourage investment in innovation
- Slow the development of new technologies and industry standards
Excessively penalizing SEP holders for high licensing prices may reduce incentives for future SEP development, thereby slowing down the diffusion and adoption of inventions and technologies that greatly enhance human living standards and economic productivity.
Contract law enforcement (rather than antitrust lawsuits) is a more balanced way to address bad-faith FRAND violations without distorting competitive incentives.
Sources:
- Department Of Justice, “Statement of Interest before the 9th U.S. Circuit Court of Appeals in FTC v. Qualcomm,” (July 2019).
- FTC v. Actavis, Inc. 133 S. Ct. 2223 (2013).
- Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 303 (3d Cir. 2007).
- Carl Shapiro and Douglas Melamed, “How Antitrust Law Can Make FRAND Commitments More Effective,” The Yale Law Journal (2018).
- Department Of Justice, “Assistant Attorney General Makan Delrahim Delivers Remarks at IAM’s Patent Licensing Conference in San Francisco,” September 18, 2018.
- Alden Abbott, “The New Madison Approach to Antitrust and Patent Licensing: A Property Rights and Innovation Perspective,” Competition Policy International (July 2021).
- FTC v. Qualcomm Inc., 969 F.3d 974, 994-95 (9th Cir. 2020).