What You Need To Know…

We often get asked why we, as an organization, take such a hard line about not mentioning pricing during our seminars and anything we, as an association, are involved in. Quite simply, there are very strict rules in place by the federal government. These antitrust laws have very harsh penalties.

Congress passed the first antitrust law, the Sherman Act, in 1890 as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.” In 1914, Congress passed two additional antitrust laws: the Federal Trade Commission Act, which created the FTC, and the Clayton Act. With some revisions, these are the three core federal antitrust laws still in effect today.

The antitrust laws have the same basic objective: “to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up.” This is a quote from the Federal Trade Commission (FTC) website. The last sentence is in direct conflict with the rhetoric you read about on Facebook.

Understanding The Rules And Consequences

The Sherman Act is the law that most affects us. Quoting from the FTC, “The Sherman Act outlaws every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.”

Long ago, the Supreme Court decided that the Sherman Act does not prohibit every restraint of trade, only those that are unreasonable. For instance, in some sense, an agreement between two individuals to form a partnership restrains trade, but may not do so unreasonably, and therefore may be lawful under the antitrust laws.

On the other hand, certain acts are considered so harmful to competition that they are almost always illegal. These include plain arrangements among competing individuals or businesses to fix prices, divide markets, or rig bids. These acts are per se violations of the Sherman Act; in other words, no defense or justification is allowed.

The penalties for violation are severe, again quoting from the FTC: “The penalties for violating the Sherman Act can be severe. Although most enforcement actions are civil, the Sherman Act is also a criminal law, and individuals and businesses that violate it may be prosecuted by the Department of Justice. Criminal prosecutions are typically limited to intentional and clear violations, such as when competitors fix prices or rig bids. The Sherman Act imposes criminal penalties of up to $100 million for a corporation and one million dollars for an individual, along with up to 10 years in prison.

Under federal law, the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million.”

The DOJ takes a strong look at trade associations to determine whether they are legitimate 501c6 (nonprofit) organizations, be it NAPDRT, or a group of competitors having dinner. Again quoting from the FTC, “But forming a trade association does not shield joint activities from antitrust scrutiny: Dealings among competitors that violate the law would still violate the law even if they were done through a trade association. For instance, it is illegal to use a trade association to control or suggest prices of members. It is illegal to use information-sharing programs, or standardized contracts, operating hours, accounting, safety codes, or transportation methods, as a disguised means of fixing prices….. One area for concern is exchanging price or other sensitive business data among competitors, whether within a trade or professional association or other industry group. Any data exchange or statistical reporting that includes current prices, or information that identifies data from individual competitors, can raise antitrust concerns if it encourages more uniform prices than otherwise would exist. In general, information reporting cost or data other than price, and historical data rather than current or future data, is less likely to raise antitrust concerns.”

Basically, it is illegal for a competitor to suggest to another competitor what to charge. Each individual business must come up with its own pricing. That is the stance of the NAPDRT.