Antitrust 101: Everything You Need to Know About When to Hire an Antitrust Lawyer
Antitrust law blends complex, high stakes litigation with economics. You don’t need to be an expert in antitrust law to serve your clients—but you do need to know enough about antitrust law to know when it could be an issue. This course covers the basics of antitrust law, from cartels to mergers.
Aaron Gott - My name is Aaron Gott, and this is antitrust 101, everything you need to know about when to hire an antitrust lawyer.
Antitrust law blends complex high stakes litigation with economics, but you don't really need to be an expert in antitrust law to serve your clients. You just need to know enough about antitrust law to know when there is an issue, so this course is an issue-spotting course. It's gonna cover the basics of antitrust law, from cartels to monopolies to mergers. By the end of this course, you'll be able to spot antitrust risks and antitrust violations by understanding the basic concepts underpinning the federal antitrust laws. You'll also learn the various types of conduct that violate federal antitrust law, and the consequences for the violation. You'll learn about how the federal antitrust laws are enforced by governments and private parties and how state antitrust law also plays a role in competition policy. You will also learn some key exemptions and immunities from federal antitrust law.
In this course, we're gonna talk about a few different things. First, we're gonna give a little bit of background and history on the antitrust laws. Then we're going to talk about three substantive areas, including conspiracies, monopolies, and mergers. We'll talk about some key economics concepts, we'll talk about antitrust litigation and remedies, and we'll also talk about major exemptions from the antitrust laws.
But first, to tell you a little bit about me, again, my name is Aaron Gott, and I am a partner at Bona Law PC. We're a boutique antitrust litigation firm with offices in five cities across the United States. I've been at Bona Law and practicing antitrust law for over eight years, and I'm hoping that I can give you just a little taste of what I've learned in those eight years. I've been lead council in several major antitrust cases involving price fixing and group boycotts, monopolies, I've advised clients on how to avoid going to litigation over the antitrust laws, and I've defended clients who found themselves in the unenviable position of being sued for violations of the antitrust laws, typically in class action multi-district litigation.
With that, let's get started. You might be surprised to know that the antitrust laws have been around for a long time, virtually unchanged. It started with the Sherman Act, which was passed in 1890. Senator John Sherman was the sponsor. He was a Republican from Ohio who had been serving in Congress since the Civil War. and at that time, it was becoming apparent that a few people controlled a lot of commerce, so the Sherman Act was passed, and since then it's been considered the Magna Carta of free enterprise. The Supreme Court has called it a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. The Sherman Act has enjoyed broad bipartisan support for over a century, and if you think about it, it's quite amazing. Consider that Congress' commerce power is probably the most important power it has. Has existed largely unchanged for the last 130 years. The Sherman Act is really important. It provides for exclusive federal jurisdiction, meaning the cases can only be brought in federal court, and it has two main provisions.
The first is section one of the Sherman Act, which is about conspiracies. It outlaws every contract, combination, or conspiracy in restraint of trade. What that means is that it requires concerted action among more than one independent economic actor.
Section two of the Sherman Act is about monopolies. It outlaws every monopolization, attempted monopolization, or conspiracy or combination to monopolize. Section two usually concerns unilateral conduct by one party. The Sherman Act has criminal penalties. A violation of either section one or section two of the Sherman Act is a felony, and conviction can mean up to 10 years in prison.
Now, the Sherman Act has remained largely unchanged since 1890, but it has been augmented in a couple of important ways.
First, the Clayton Act. The Clayton Act was passed in 1914, so about 25 years after the Sherman Act, and the Clayton Act was designed to increase enforcement of the Sherman Act by adopting a private attorney's general model, under which private parties who were aggrieved could sue defendants for travel damages, injunctive relief, attorneys fees, and costs. Treble damages is a big deal. Treble, of course, means three times, so any plaintiff who has been harmed by anti-competitive conduct can recover three times the amount that it was actually harmed, plus the costs to obtain that recovery. You can imagine that that was a big deal and a turning point in the importance of the Sherman Act. The Clayton Act did a couple of other things. One of those things that's worth mentioning is that it gave both federal agencies and affected private parties the right to challenge mergers under section seven of the Clayton Act, and those challenges could be conducted before or after a merger had been consummated.
Also passed alongside the Clayton Act was the FTC Act. The FTC Act created the Federal Trade Commission, and importantly, under section five of the FTC Act, gave this new agency the power to enforce the Sherman Act and other types of unfair competition. And the final fundamentally important antitrust statute is the Hart-Scott-Rodino Act, which requires large mergers and acquisitions to obtain pre-clearance from an antitrust enforcement agency. We'll talk more about that at the end of this program.
So with this statutory background, there are four different ways that the antitrust laws are enforced. First, the department of justice can bring criminal and civil actions to enforce the Sherman Act. Second, the Federal Trade Commission can bring administrative and civil actions to enforce the Sherman Act. Third, states can bring parens patriae actions, and fourth, private parties can bring civil actions.
Now, the federal antitrust laws usually get most of the focus, but it's important to remember that every single state also has its own antitrust laws. These laws typically track federal antitrust law, but there's one big exception we'll talk about in a minute. States can enforce their antitrust laws often criminally. They can bring investigations, et cetera. Private parties can also bring claims under state antitrust laws. State antitrust laws play an important part in a lot of major antitrust litigation. That's because of something called Illinois Brick. It was a Supreme Court case that said that the federal antitrust laws do not allow indirect purchasers standing. That's an important limitation in one of the most common types of antitrust litigation scenarios. That scenario is where a group of manufacturers are alleged to have gotten together and fixed prices.
Now, a lot of those cases are usually brought by consumers, but manufacturers typically don't sell directly to consumers. They sell to distributors or retailers, so under that Supreme Court precedent, it's only the distributors or retailers that would have standing to sue for the antitrust violation under federal law. Well, luckily the Supreme Court also said that states could have their own laws that do not apply that Illinois Brick Standard, and since the Supreme Court has said that, a majority of states have passed laws that are called Illinois Brick repealers. This allows individuals who are indirect purchasers standing under state antitrust law to sue for violations. So, you'll actually see that play out in the vast majority of price fixing cases. Most price fixing class actions have two classes. There's a class of direct purchasers, those retailers or distributors who are suing under federal antitrust law, and indirect purchasers who are suing for injunctive relief under federal antitrust law and for damages under state antitrust law in an Illinois Brick repealer state. So it's important to remember that not just federal antitrust law is an important aspect to federal competition policy.
Now, that's the basic overview of federal competition policy, so let's talk a little bit more specifically about section one of the Sherman Act, which again, covers agreements to restrain trade.
Section one of the Sherman Act has three important elements. First, you must show an agreement among independent economic actors. Second, you must show a restraint. Courts have interpreted this to include only unreasonable restraints of trade. And third, you must show antitrust injury. Let's talk about each one of these elements.
The agreement requirement is simple. You have to show a conspiracy, or a combination, or a contract, among independent economic actors. Now, this doesn't have to be a written contract. It doesn't require anything formal. There can be an agreement to restrain trade with as little as a knowing wink. The agreement must also be among independent economic actors. What that means is they must be independent centers of decision making in the marketplace. The Supreme Court decided that not too long ago in a case called American Needle. In that case, the teams from the national foot ball league gave all their licensing authority to a single entity, and then they argued that that entity could not conspire with itself when it came to setting the prices for licensing. The Supreme Court said not so fast. It doesn't matter that the NFL teams have created this single entity. You can't get around the antitrust laws by being clever, and more specifically, any time a combination or conspiracy deprives the market of independent centers of decision making, you have an agreement under section one of the Sherman Act.
The second element is that you must have a restraint of trade. The type of restraint matters here, because there are different types of restraints. There are two primary categories of these restraints. First you have per se illegal restraints, and then you have have restraints that are evaluated under the rule of reason. There are a couple of other categories that fall somewhere in between, but these are the two important types that you really need to know. The per se unlawful category is reserved only for those types of restraints that courts have determined over time and through judicial experience always or almost always have a pernicious effect on competition. We know for example that when competitors get together and fix prices, that competition is harmed. It means higher prices for consumers, so price fixing is per se unlawful. Other examples include bid rigging, restrictions of output, and classic horizontal group boycotts. When a court determines that the per se category applies to a particular type of restraint, it makes proving the violation a lot easier, so plaintiffs of course want their case to proceed under the per se rule, and defendants of course want their case to proceed under the rule of reason.
The rule of reason is, in fact, the presumptive rule for restraints that have not already been deemed per se unlawful. So anything that does not apply categorically per se unlawful is likely to fall under the rule of reason. The rule of reason applies to almost all vertical agreements, and the rule of reason applies to conduct that might fall under the per se category but doesn't because the defendant has met their burden to show that the restraint was ancillary and necessary to a broader pro-competitive agreement. To meet the burden under the rule of reason, a plaintiff must first show that there were anti-competitive effects because of the restraint. After the plaintiff meets that burden, the defendant then has an opportunity to rebut the burden by showing that the restraint had pro-competitive benefits. And finally, if the defendant is able to make that showing, the plaintiff must show, must persuade the court, that the anti-competitive effects of the conduct substantially outweighed the pro-competitive benefits. Now, that's a pretty high bar, and it typically requires extensive expert testimony by economists and econometricians.
The third element for section one of the Sherman Act is antitrust injury. The antitrust injury requirement applies only to private parties and states. It's important to note that this does not apply to the federal government, whether it's a civil or a criminal or administrative case, but if you're a private party or a state, you must show that you have suffered an injury of the type the antitrust laws were meant to prevent, and that flows from that which makes the defendant's conduct unlawful. That's a lot of words there, and they find their origin in a 1970s case from the Supreme Court, Brunswick Corp versus Pueblo Bowl-O-Mat. The courts have spent a lot of time ever since then trying to figure out exactly what that means, but what most courts have settled on is that antitrust injury is an injury that was proximately caused by competition-reducing conduct of the defendants. So you know now the basic requirements for a section one claim, an agreement, a restraint of trade, and antitrust injury.
Let's go back to the text of section one of the Sherman Act. It says every combination, contract, or conspiracy, every contract, combination, or conspiracy. That's really broad. You could consider just about any transaction in commerce to be some sort of agreement or contract, so it's important to distinguish between these different types of agreements, because some have antitrust implications and others do not. You can break down agreements into two categories, horizontal agreements and vertical agreements. Horizontal agreements are agreements between economic actors at the same level of distribution. What that means is, typically, those who directly compete with one another.
Some examples might include manufacturers of widgets who agree to fix the prices of widgets, farmers who agree to plant fewer crops to decrease the supply and thus command a higher price, government contractors who agree not to submit competitive bids and take turns doing so in order to drive up the bid prices, or where distributor A agrees not to sell in Florida and distributor B agrees not to sell in Georgia. That's what we call a market-allocation agreement. There're some standard names for these types of agreements. There's price-fixing, bid rigging, output restrictions, market allocation, customer allocation, and classic group boycotts. These agreements probably sound nefarious to you, and that's because they typically are. When competitors get together, good things do not usually happen. In fact, there isn't really much reason for competitors to get together. They're competitors, they should be competing with each other, so anytime competitors make an agreement, you should be skeptical, and that's why many horizontal agreements are judged under the per se standard. Vertical agreements, on the other hand, are agreements between economic actors at different levels of distribution. That would be manufacturers and distributors, or say buyers and sellers. They're not direct competitors.
Some examples would include a manufacturer and a retailer who agree that the retailer will not sell a product below a certain price in exchange for being called an authorized retailer, and an advertising budget. In antitrust, we call this resale price maintenance. Another example would be where an employer and an employee agree that the employee will not seek employment from a competitor of the employer for a period of two years. This is a non-compete agreement, and they happen all the time. Another example, where a buyer agrees that it will buy all of its widgets from manufacturer A in exchange for preferential pricing. Finally, our last example, a franchiser and franchisee A agree that franchisee A can open stores, but franchisee A cannot do so in franchisee B's territory, so it looks something like a market allocation agreement. So we call these types of agreements a few different names. There's exclusive dealing, resale price maintenance, employee non-compete agreements, but they're all vertical, and vertical agreements are almost always judged under the rule of reason.
Take the example of the franchiser and the franchisee. We have a lot of franchising here in the United States, and almost all franchises have territory restrictions. You don't want your franchisees competing with each other by opening up shop across the street from one another. Take McDonald's, for example. McDonald's wouldn't want two franchisees across one another on the same street. They would want a franchisee to set up shop across the street from a Burger King. These types of restraints are judged under the rule of reason because courts have recognized that there are usually some good reasons to engage in these types of restraints, but again, they don't always have good reasons, so that's why even under the rule of reason, you can have a case where the anti-competitive effects of the agreement substantially outweigh the pro-competitive benefits. And in the McDonald's case, we still have what we need, competition. We've got competition between McDonald's and Burger King. We just don't have competition between different owners of McDonald's restaurants.
Now, it wasn't always necessarily this way. In fact, up until 2007, resale price maintenance was considered by some courts to be per se unlawful. In 2007, the Supreme Court decided a case called Leegin Creative Leather Products versus PSKS. That case dealt with resale price maintenance. Now, the Supreme Court had said before that vertical agreements should typically be judged under the rule of reason, but that wasn't the case for all vertical agreements. Resale price maintenance was one that some courts had continued to apply the per se unlawful rule to. The Supreme Court in Leegin said that that's not right. What we need to look at is not just any type of competition, but inter-brand competition. Resale price maintenance doesn't affect inter-brand competition negatively. It affects intra-brand competition.
Thus we go back to our example of McDonald's and Burger King. Territory restrictions by McDonald's on the franchisees prevent intra-brand competition, strengthening all the franchisees to compete inter-brand with competitors like Burger King. Now, that's just the rationale for one type of vertical agreement, but you can imagine that other types of vertical agreements have similar justifications, and these justifications often outweigh any anti-competitive effects that might result from the agreement, so keep that in mind when you're assessing whether or not there's an antitrust claim. Is the agreement horizontal or vertical? If it's horizontal, it's much more likely to be an agreement of concern.
Let's talk about Sherman Act section two.
Section two is the provision that covers monopolies. The text of Sherman Act section two is that it makes illegal monopolization, attempted monopolization, or conspiracy or combination to monopolize. So typically what we're dealing with under section two is unilateral conduct, that is, conduct by a single firm. You don't need an agreement under section two. The only exception there would be if you're bringing a claim for conspiracy to monopolize. So there are three elements for a section two claim. First, you must show monopoly power. Monopoly power is the power to raise prices or exclude competition. Monopoly power cannot be determined by a simple percentage, but generally speaking, if a competitor has more than 80% share in a market, they probably have a monopoly. The second requirement is anti-competitive conduct to acquire or maintain that monopoly power, and that's distinguished from conduct that is not anti-competitive. You can obtain a monopoly by being really good at what you do, or because of a historical accident. You were just at the right place at the right time. The only time you cannot obtain a monopoly is by acting anti-competitively.
Finally, just like with section one, you must show antitrust injury. Again, that is an injury of the types the antitrust laws were meant to prevent, and that flows from that which makes the defendant's conduct unlawful. You can categorize different types of monopolization conduct into a few buckets, but it's important to remember that it's not the specific type of conduct at issue that matters, but whether or not that conduct was anti-competitive. What you need are the fundamentals. You need to have monopoly power and anti-competitive conduct, and you'll see a lot of times in monopolization cases that the conduct you're dealing with doesn't fit neatly into one bucket. It might fit into a couple different buckets, or maybe there's not even a bucket to describe what it is. Monopolists will do just about anything to hang on to their monopoly power, and that means there's a lot of things that they might try. But if you're gonna make some categories, one category would be exclusive dealing or refusal to deal. This can also be a Sherman Act section one violation if it's done among more than one independent center of decision making by an agreement. Another category would be loyalty, bundled discounts, and tying. Tying can also be a section one violation. It's a vertical agreement, but it has a special place in the antitrust laws. Another category might be restraints on sale. And then we also have predatory pricing. Predatory pricing is useful to talk about because it's a very limited doctrine and it shows really the problem of section two cases. Section two cases are rare because there's such a high bar, and why is that? Well, that's because we want firms to fiercely compete, and when we're talking about conduct by a single firm, we can't just assume that there's something troubling afoot. In fact, some of the most successful companies in our nation's history have competed fiercely and obtain monopolies because they were the best.
Now, predatory pricing is an example of that. One way to tell whether or not there have been anti-competitive effects in the market is price. Is the price lower or higher for consumers? Predatory pricing is where a firm prices below cost for the purpose of eliminating its competitors in the short run and ultimately reducing competition in the long run. The basic idea is, once a monopolist has gotten rid of all of its competitors and there's no price competition, the monopolist can raise its prices and obtain monopoly rents. But predatory pricing claims are hard, and for good reason. The first is that predatory pricing schemes are rarely tried and are usually not successful when they are tried, and second, it can be difficult for a court to distinguish pro-competitive low prices from predatory low prices, because cutting prices in order to increase business is often the very essence of competition. So the Supreme Court in a 1993 case called Brooke Group versus Brown and Williamson Tobacco Corporation held that predatory pricing allegations will be upheld only if the prices complained of are below an appropriate measure of its rival's cost and the defendant had a dangerous probability of recouping its investment in below cost prices. In other words, recouping its losses from the predatory pricing scheme. So now you know a few different types of monopolization claims, but it's important to remember that monopolization requires, one, monopoly power, two, anti-competitive conduct to acquire or maintain that power, and three, antitrust injury. As I mentioned at the beginning of this program, antitrust is a mix of high stakes litigation and economics. You don't need to be an economist to be an antitrust lawyer, or even to recognize antitrust claims, but you should know about a couple of concepts. These concepts are relevant to both section one and section two of the Sherman Act.
The first of these concepts is market definition. One thing you have to do in any antitrust case is define the relevant market. What is a relevant market? It is the area of effective competition. Another way to describe it, the place where consumers can turn to fulfill their needs. There are two components to market definition. First, there's the product or service dimension of the relevant market. Here, you're looking at what products a buyer will consider for a particular need, or what services the buyer will consider for a particular need. Then there's the geographic dimension. All this really means is how far buyers are willing to travel to purchase the products. You wouldn't, for example, obtain ready-mix concrete from three states over, because by the time your order was delivered, the ready mix would already be hardened. Now, whether you're talking about the product or service dimension or the geographic dimension of the relevant market, you must define both dimensions with reference to cross-elasticity and substitutability of demand.
So for example, if the price of iPhones goes up a certain amount, many people will buy Androids instead, and that's because an Android is a substitute for an iPhone for all intents and purposes and there's cross elasticity of demand, because when the iPhone price raises to a certain amount, demand for the Android increases. Relevant markets can be particularly contested in monopolization cases, or cases where the government is challenging a prospective merger. In cases where the relevant market is in dispute, courts will often employ a test called the SSNIP test. What that stands for is a small but significant transitory increase in price, and its purpose is to define the smallest relevant market within which a hypothetical monopolist or cartel could impose a profitable, significant increase in price. But the reason I'm telling you about this is just so you don't get too wrapped up in the economics. All you need to do to plead an antitrust claim is define the relevant market with reference to cross elasticity and substitutability of demand. So why is it that we need to define the relevant market in the first place?
Well, that's because in most antitrust cases you must show either market or monopoly power, and that's our second antitrust economics concept. Market power is the power to raise prices. Market power is used in section one cases to determine whether or not conspirators have the power to effectuate whatever agreement it is that they made. For example, a price-fixing conspiracy couldn't have the effect of raising prices in the market unless the conspirators had market power. Now, there is no specific percentage of the market that you must show the defendants have to show that they have market power, and that's because it depends on the market. Some markets, it's easier to enter than others. If the price raises today, tomorrow another competitor might come on the scene, seizing the opportunity.
In other markets, there may be regulatory barriers, or huge capital investments that prevent new competition for some appreciable amount of time. Monopoly power, on the other hand, is used in section two cases. Monopoly power is the power to raise prices or exclude competition, and again, just like market power, there is no specific percentage of market share that equates to monopoly power for the same reasons. So what is the difference between market power and monopoly power? Nobody really knows. In fact, the U.S. Department of Justice antitrust division has said, "We can find no Supreme Court opinion that contrasts the terms market power and monopoly power deliberately and explicitly." And your next question of course might be, "Why do we need to know about market or monopoly power?" And that's because in antitrust law, we apply what's called the consumer welfare standard. The consumer welfare standard puts everything in the perspective of the consumer. What we ask under the consumer welfare standard is whether not a practice restrains trade from the consumer's perspective, and the way that we do that is looking at whether or not, as a matter of economics, the consumer is harmed because of reduced value or welfare that they would've obtained absent the particular restraint in question.
And since we're looking at consumer welfare, that brings market power to the center stage. When we use the term market power or monopoly power, what we really mean is the ability to set the price at a super-competitive level or offer a lower quality of service for the same price. So now you know enough about antitrust law to know when to call an antitrust lawyer. You know when to spot a competition issue. You know when your client is either the perpetrator or a victim of an antitrust violation, or whether or not your client has some risk of committing an antitrust violation, or at least being accused of one. But it's also important to know the consequences, or if you're on the plaintiff's side, the remedies for an antitrust violation. We talked before about the Clayton Act giving a private right of action. Plaintiffs who are successful in prosecuting a Sherman Act section one or two claim are entitled to the following. One, treble damages. That means three times the amount of actual damages that the plaintiff proves at trial. Two, attorneys fees. Antitrust attorneys are expensive, so this can be quite a big deal. Third, injunctive relief. Defendant, stop doing what you're doing. In fact, there's a separate provision in the U.S. code at 15 U.S. Code Section 26, that provides specifically for injunctive relief regardless of damages. Fourth, there's another important aspect to antitrust remedies, and that has to do with a portioning liability.
Now, in most types of cases that are not antitrust cases, if two defendants are liable, you might seek a remedy from one, and that defendant might seek contribution from the other defendant. There is no right of contribution in antitrust law, meaning that if you are a co-conspirator with other defendants or even unnamed parties, and you are found liable for an antitrust violation, the plaintiff could go after you for the entire amount, and once you paid it, you would have no right to go back to court and get contribution from your co-defendants. You might ask why the antitrust laws are so harsh compared to other remedial statutes, and that's because Congress determined that private antitrust litigation is the surest way to enforce the nation's policy in favor of competition. Another clue that Congress takes the antitrust laws really seriously is the fact that there is exclusive federal jurisdiction under the federal antitrust laws. Congress thought the antitrust laws were so important that they don't even trust state courts to enforce them. Being an expert as an antitrust litigator means that you also must be an expert in complex litigation. That's because most major antitrust cases are class actions, and many of 'em are multi-district litigation cases. In fact, there's something called the antitrust blizzard. What happens is the department of justice will announce that it's investigating some industry. Right after that, a flurry of complaints will be filed in district courts throughout the United States. Behind each one of those complaints is a plaintiff's class action firm that ultimately seeks to be appointed to represent a nationwide class of direct or indirect purchasers. Once there have been a number of complaints filed in different districts, the judicial panel on multi-district litigation will take all of those cases and send them to one particular district for pre-trial proceedings.
So now you've got a consolidated case with a whole bunch of named plaintiffs represented by a whole bunch of different plaintiff's class action firms suing an industry, and each one of those firms wants to be appointed as class counsel, so the court in which the cases are consolidated will eventually appoint class counsel. There will be motions to dismiss followed by extensive discovery, class action certification briefing, and ultimately, a class certification decision from the district court. That decision is more likely than other class action decisions to be appealed under rule 23 F of the civil rules of procedure. That's because antitrust cases tend to meet the requirements for those discretionary appeals, and circuit courts are more likely to take up those cases. If class certification doesn't go forward, the plaintiffs might get another attempt. If the class is certified, then comes summary judgment briefing. Finally, many years later, trial. If you represent business clients, this is something that you need to know, because there are a lot of risks with antitrust law, and one of those biggest risks, especially for smaller firms in the marketplace, is the cost of getting caught up in an antitrust blizzard. For those of you to whom this applies, it just drives home the point that you should be on the lookout for antitrust risks and antitrust violations, and refer your client to a competent antitrust lawyer to help manage those risks and prevent the possibility of one of these antitrust blizzards. And for the rest of you, at the very least, it should show that the anti-trust laws are an effective deterrent to anti-competitive conduct, at least for those who understand those risks.
Now, you know what conduct can get you in trouble under section one or section two of the Sherman Act, but there are also a few exemptions. It's important to note at the start that the Supreme Court has said over and over again that exemptions and immunities from the antitrust laws are disfavored and narrowly construed. There are a number of different exemptions. We'll talk about some of the key ones here.
The first is the state action immunity. Now, it's called the state action immunity, but it's not an immunity. It's merely an exemption from liability. Unlike, for example, qualified immunity, which would entitle a state official immunity from suit, the state action immunity simply means that the defendant is not liable under the Sherman Act. In order to get the state action immunity, the defendant or defendants must show that their conduct is exempt because it's in furtherance of a state policy to displace competition. Most defendants must also show that they were actively supervised by the state. The one exception is municipalities. They typically do not have to show it.
The next big exemption is the labor exemption. There's actually two labor exemptions, the statutory labor exemption and the non-statutory labor exemption. All you really need to know is that if a union is involved, then an exemption probably applies, and collective bargaining, even though it is economically indistinguishable from price-fixing, is not an antitrust violation. The next exemption is the insurance exemption. This exemption exempts the business of insurance. That doesn't mean that insurance companies can never be charged with antitrust violations, but it does mean that if the business of insurance is involved, there might be an exemption.
Another is called the filed rate doctrine. This doctrine exempts the challenge of rates that were filed with an administrative agency under the idea that if some administrative agency thought the rates were okay, then it shouldn't matter whether or not they're competitive or anti-competitive. The court shouldn't get involved. Next is the Capper-Volstead Act. The Capper-Volstead Act exempts certain activities of farm cooperatives from the operation of the antitrust laws, but like a lot of the other exemptions, there are some requirements that must be met, and the failure to meet those requirements could mean that a farm cooperative and all of its members are subject to antitrust liability.
Finally, the LGAA, or the Local Government Antitrust Act of 1994. The LGAA provides that local governments are immune from damages under the federal antitrust laws, but unlike other exemptions, the LGAA does not exempt local governments from liability, only from damages, so you can still sue a city or a county for injunctive relief and attorney's fees under 15 U.S. Code Section 26. Now, there are a whole bunch of other antitrust exemptions, some explicit, some implicit. We've covered some of the most common exemptions during this program, but you should know that there's a chance that some other exemption might apply. Outside of your typical antitrust litigation is another area of antitrust law that gets a lot of attention in the press, and this has to do with mergers and acquisitions.
There are two key statutes that are important here. First, Clayton Act section seven allows challenges to mergers even after they're completed by private parties or states. And then there's also the Hart-Scott-Rodino Act, which provides for pre-merger notification to the U.S. antitrust enforcement agencies. That's the FTC or the DOJ, depending on your industry. Any corporate sale or acquisition that goes above a certain threshold must first clear either Department of Justice or Federal Trade Commission review.
Whether a particular transaction is reportable is a highly technical and nuanced question, one that an antitrust lawyer will probably need to answer, but just for perspective, there are two tests. The Size of Transaction Test for 2022 is a threshold of $101 million. Any transaction larger than that might be subject to pre-merger notification. There's also another test called the Size of a Person Test, person usually being corporation, but sometimes a shareholder, and those thresholds depend on whether you're the smaller or larger company involved. If you're the smaller one, it's $20 million, and if you're the larger one, it's $202 million.
I mentioned before that the agency reviewing a particular transaction depends on what industry is involved. With pre-merger notifications, you actually have to send them to both the Department of Justice and the FTC. Either agency could choose to review a merger, but as a matter of practical reality, the agencies have divvied up which industries each is going to handle. Once you've made your HSR filing if your transaction is a reportable one, there's a mandatory waiting period. That's typically 30 days, unless the agency makes what's called a second request. A second request is a lot like civil discovery, and it involves the agency looking closer to transaction. It's important to note that there's a lot going on with merger review right now, and the FTC in particular has made a lot of policy changes, so it's important to consult an antitrust lawyer. And that's pretty much all you need to know about mergers. Over the last hour, you've learned quite a bit about antitrust law, at least enough to know when your client has a potential antitrust issue warranting further consideration. Let's do a little recap. The federal antitrust laws include a number of federal statutes, but antitrust litigation centers on a 130-year-old law called the Sherman Act. The Sherman Act makes conspiracies to restrain trade and anti-competitive monopolization a felony.
The Clayton Act later created a civil cause of action that gives a prevailing plaintiff the right to three times actual damages plus costs and attorneys fees. We learn that the vast majority of cases are enforcement by private litigation, often class actions concerning conspiracies. Some conspiracies involve restraints that are per se illegal, including price fixing, bid rigging, and other conduct that has little redeeming value. Those types of cases are what attract class action plaintiffs, the Federal Trade Commission, or the U.S. Department of Justice. Then there are other restraints that are judged under a different standard called the rule of reason, and some conduct is exempt from Sherman Act section one under one of numerous exemptions. Antitrust violations can have severe consequences, and there is potential for an antitrust problem anytime competitors are in the same room together, when firms are exercising market or monopoly power, or when conduct reduces competition to the detriment of consumers. And finally, on the transaction side is merger pre-clearance. Merger transactions and parties over a certain size must notify the U.S. Department of Justice and the Federal Trade Commission, which could lead to a second request and objections if likely to have anti-competitive effects.
Keep in mind that antitrust law is a complex subject with a lot of nuances and a rich history, so if you identify a potential antitrust problem, the best practice is to consult an antitrust lawyer.
If you'd like to know more about any of the topics we've discussed today, you can find more information on our website, bonalaw.com, or our blog, theantitrustattorney.com. My name is Aaron Gott with Bona Law, and this has been an antitrust 101 presentation brought to you by Quimbee.