Regardless of how competitors divide up the market, they are likely to involve antitrust prohibitions per se. This is true even if a company receives a payment to stay out of a market to do something else. So if northern real estate brokers paid southern real estate brokers to stick to commercial real estate or even mortgage arrangements, they created a market-sharing agreement. In federal antitrust proceedings under the Sherman Act, courts award successful plaintiffs reasonable attorneys` fees and damages equal to three times their actual losses. In appropriate cases, a court may also order defendants to cease any other activity related to the prohibited conspiracy. Plaintiffs in retail antitrust proceedings and market allocations may also receive damages and injunctive relief under the antitrust laws of certain states. A market-sharing system may also involve an agreement between participants not to compete to attract each other`s existing customers or markets. Q: I want to sell my business and the buyer insists that I sign a non-compete agreement? Isn`t that illegal? The FTC discovered such an agreement when two chemical companies agreed that one would not sell in North America if the other would not sell in Japan. Illegal market sharing may involve allocating a certain percentage of the available business to each producer, geographically dividing sales territories, assigning specific customers to each seller, or agreeing not to poach customers or employees from the other. A: A limited non-compete obligation is a common feature of transactions where a business is sold, and courts have generally authorized such agreements if they are incidental to the main transaction, if they are reasonably necessary to protect the value of the assets sold, and if they are reasonably limited in time and scope covered.
However, there are other situations in which non-compete obligations may be anti-competitive. For example, the FTC prevented the dialysis clinic operator from buying five clinics and paying its competitor to close three others. The purchase agreement also contained a non-competition clause that prevented the seller from opening a new clinic in the same environment for five years and required it to enforce non-compete obligations in its contracts with medical directors of closed facilities. In this situation, the non-competition clause prevented these physicians from acting as medical directors for any new clinic in the area and reduced the likelihood of a new clinic opening for five years. The FTC concluded that the clinic closure agreement, reinforced by the five-year non-compete agreement, was an illegal agreement to eliminate competition between competitors. One of the ways antitrust laws attempt to protect consumer welfare is by categorizing certain types of behavior as illegal per se. The rule itself applies to restrictions for which the courts have extensive experience and can predict with certainty that the restriction will be declared invalid in all or substantially all cases. In other words, the restrictions found by the courts are such as to affect competition and a more thorough analysis of the commercial justifications or pro-competitive advantages is not warranted.
As such, condemnation is more common in cases involving price fixing, bidding and market sharing. This article describes the general antitrust concepts related to naked market-sharing agreements. Regardless of how the system is implemented, the result is a de facto monopoly of each conspirator on that conspirator`s designated market share. This eliminates competition for prices and customers or territories. The conspirators can then charge higher prices to their respective customers without running the risk of being underrated by their competitors. However, there are specific situations in which a market-sharing agreement does not necessarily constitute an infringement of a cartel. If you don`t have competition – which is great for winnings, read Peter Thiel`s book – this thought has probably crossed your mind. And that`s okay – the government isn`t prosecuting and prosecuting antitrust laws for what`s right in your head, at least not yet. Mere collusion between competitors to divide sales territory or allocate customers is almost always illegal. Similarly, the clear agreement between competing employers not to recruit or hire employees of the other party is an illegal assignment of workers to a labour market. These agreements are essentially non-compete agreements: “I`m not going to sell in your market if you don`t sell in mine” or “I`m not going to poach your employees if you don`t poach mine.” Individuals and companies that knowingly enter into illegal market allocation agreements are regularly investigated by the FBI and other federal law enforcement agencies and may be prosecuted. Possible penalties include long jail terms (up to ten years) and hefty fines (up to $1 million for individuals, $100 million for businesses, or double the profits or losses of the crime).
If necessary, the FTC can also take civil enforcement action. Horizontal market sharing systems (those between direct competitors) violate the Sherman Act by: Although the geographic boundary created an obvious method for both companies to share markets, they could also have agreed not to steal each other`s existing customers (market allocation based on established affiliation, which is common). Thus, if a real estate agent of the Northern brokerage firm wins a client, in the future, no broker of the Southern brokerage firm will compete for that client`s business. These outright market-sharing agreements allow companies to collectively reap the benefits of monopoly prices and profits – in an artificially created market, free from the competition to which companies would be exposed in the absence of such an agreement. In fact, when competitors conspire this way, consumers are deceived. For this reason, each of these types of market-sharing agreements between competitors is generally treated as an antitrust breach per se. And companies that engage in this type of anti-competitive collusion will be prosecuted by the antitrust division of the Department of Justice.