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How the Antitrust Laws Apply to Small Businesses

Filed under Running A Business.

If someone were to ask you, as a small business owner, whether you had ever restrained trade or acted to monopolize your industry, how would you answer? If you're like most small business owners, after you stopped laughing, you'd probably say something like, "How can I, a small fish in a big pond, monopolize an industry? The antitrust laws are for the big boys."

Although your answer would be fairly typical, it could also be dangerously wrong. Although the risks of violating antitrust laws are far smaller for small businesses than for larger businesses (in fact, small businesses are more often the victim than the perpetrator), you still can run afoul of the laws.

Antitrust law is about market power — either yours individually or, more often, in conjunction with that of your competitors. What you have to keep in mind is that not every market is nationwide; a county, a city, or even a smaller area may be found to be a relevant market within which the implications of antitrust can be assessed. Also, you do not have to follow through on a course of action in order to be found liable; it is the conspiracy that most antitrust laws forbid. If you follow through, you're in even bigger trouble.

So, how do you avoid getting involved in activities that might expose you to potential antitrust problems? Don't do any of the following:

  • Discuss prices with competitors.
  • Discuss contract bid terms with competitors.
  • Discuss territories with competitors.
  • Join competitors in boycotting another competitor or supplier.
  • Require customers to purchase unwanted items in order to get desired items.
  • Use your market power unfairly to drive competitors out of business.
  • If you are the only or dominant market member in a local area, use unfair methods to keep competitors from entering the market.

Also, be cautious, even in a seemingly innocent setting, such as a trade association meeting, where you may interact with competitors. If you feel that someone is going beyond acceptable bounds, make your exit from the conversation or meeting loud and demonstrative. It wouldn't hurt to state your objections on the way out.

Most small businesses are unlikely to face real antitrust liability. There have been, however, situations where small businesses have been found guilty of violating the laws. During the 1980s, many small construction companies were charged with rigging bids on small highway repair contracts. Dairies and other small, local businesses are recurring targets. Physicians and dentists have been charged with and penalized for antitrust violations based on the use of fee schedules.

A conviction for violating antitrust laws can have disastrous, even fatal, consequences for your business. First, there are the criminal penalties. The maximum penalty for a federal antitrust violation is $10 million for a business (highly unlikely at the extreme end for a small business) or $350,000 for individuals. Individuals can be imprisoned for up to three years.

Second, there are the out-of-pocket costs. Litigation could last years, which means not only high legal fees but also the loss of your time, efforts, and energy, which could be used far more productively elsewhere. And, third, there is the stigma of a violation, which could cripple your business reputation.

If you ever feel that some action you're about to take may have antitrust implications, talk to your attorney first. In fact, it may be a good idea to preempt any antitrust problems by going with your attorney to discuss the matter with your state antitrust enforcer. Most of these antitrust offices will be happy to define the limits of your proposed activity and help you avoid liability.

If you find yourself accused of an antitrust violation, contact your attorney immediately. An antitrust proceeding can be initiated by the Antitrust Division of the U.S. Department of Justice, the Federal Trade Commission, state antitrust enforcers, or a private citizen. If you hear from anyone on that list, let your attorney know.

The key point to remember is that antitrust laws are not the sole province of the larger companies. But as long as you remember that, and as long as you stay away from the prohibited activities, you shouldn't have too much to worry about.

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