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Posted: January 11, 2016

Client Q&A: Two of my competitors seem to have decided to work together to force me out of the market. Can they do that?

Two of my competitors seem to have decided to work together to force me out of the market. Can they do that?

By Erik S. Groothuis.

The short answer is that two or more competitors cannot coordinate to force a third out of the market. If you suspect that has happened, you may have an antitrust claim.

What kinds of agreements between competitors are illegal?

The two most common types of anti-competitive agreements are referred to as “horizontal” and “vertical.”

“Horizontal” agreements or concerted action are those between or among actors, usually competitors, at the same level of the chain of distribution (e.g., manufacturers, distributors or retailers). They can be separated into those that involve an agreement relating to price, and those that restrain competition without reference to price (e.g., “you take Brooklyn and I’ll take Queens”).

“Vertical” contracts, agreements, and arrangements are those between actors at different levels of the distribution chain. Most vertical antitrust issues arise between or among a manufacturer and one or more of its dealers or distributors. Vertical restraints, too, are further broken down into those that relate to price and those that do not (e.g., territorial restrictions), and into those whose primary effect is felt by other dealers of the same manufacturer (intrabrand) and those whose primary effect is felt by manufacturers or dealers of competing brands (interbrand).

There are both federal and state statutes prohibiting these types of agreements.

    • Federal antitrust law
  • Agreements among competitors to coordinate the prices they charge others are generally considered unlawful per se under a federal law called the Sherman Act, which prohibits “contracts, combinations, or conspiracies” in restraint of trade. The Sherman Act provides in pertinent part that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states or with foreign nations, is declared to be illegal.” The courts have interpreted this statutory language as forbidding those contracts, combinations, or conspiracies that unreasonably restrain trade.

    While usually made in words, the offending agreement may be created without a written or spoken word. Agreements violating federal antitrust laws can subject the offending conspirators to both criminal prosecution (by the Department of Justice) as well as private litigation.

    • New York State antitrust law
  • New York State’s antitrust law, the Donnelly Act, requires: (1) concerted action (a “contract, agreement, arrangement, or combination”) that (2) has resulted or may result in a monopoly or an unreasonable restraint on competition, (3) by reason of which (4) plaintiff sustained injury to its business or property.

    One of the key differences between the Donnelly Act and the Sherman Act is that the Donnelly Act requires some form of anti-competitive “contract, agreement, arrangement or combination” between or among two or more actors. This element is often referred to collectively as “concerted action” and can take many different forms. But no matter how much it harms competition, unilateral conduct by a single actor, even a monopolist, is not prohibited by the New York State statute.

    Where do I file my case?

    Once you have determined that you have a colorable antitrust claim, the next decision is whether to assert it under federal and/or the New York State antitrust law, and relatedly whether to bring the lawsuit in state or federal court. Because federal antitrust law offers the prospect of treble damages, the vast majority of antitrust claims brought in New York are filed in the federal courts asserting violations of federal law, sometimes with state antitrust claims included as well. In order to have a federal antitrust claim, however, there must be an element of interstate commerce to the activity.

    On the other hand, in some cases, New York law may provide the plaintiff with more flexibility. For example, the scope of prohibited action between or among two or more actors may be broader under the Donnelly Act, which prohibits “arrangements” in restraint of trade, a term not found in the federal statutes, as well as “contracts,” “conspiracies,” and “agreements.” Likewise, if a plaintiff is seeking to avoid arbitration in the face of an arbitration clause, it can do so in the state court but not as easily in the federal court.

    Other claims

    In addition to considering where to file an antitrust claim, you should consider whether it may be better to rely on a theory of common law tort, such as tortious interference with a prospective economic advantage or unfair competition. It may not be necessary to take on the specific elements of proof of an antitrust claim, along with the detailed factual discovery and expert testimony so often required to win.

    Conclusion

    Schlam, Stone & Dolan LLP has extensive experience litigating antitrust issues. We can help you evaluate whether you have a viable antitrust claim, and if so, where it should be filed. We would be happy to assist you in this process.

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