The Sherman Antitrust Act-Price Fixing and Trusts

Shortly after the appearance of large corporations in the late 19th century, particularly the railroads, it was deemed to be in the public interest to pre­vent concentrations of power that interfered with trade or reduced levels of economic competition. The Sherman Antitrust Act (1890) essentially prohibits any activity that:

1. Fixes prices

2. Limits industrial output

3. Allocates or shares markets

4. Excludes competition

This activity can be in the form of combina­tions of cartels, or agreements between corpora­tions or individuals to accomplish any of these purposes. These combinations are often referred to as trusts. The second essential prohibition of the Act is to make illegal any attempt to monopo­lize any part of trade or commerce by any indi­vidual or corporation.

There is no “bright line” test as to what activity constitutes a violation of the Act, and it generally requires a court test and a judicial decision to settle the question of whether or not a specific activity is a violation of the Act. Per­ceived violations of the Act are enforceable by the Department of Justice through litigation in the federal courts.

■ The Clayton Antitrust Act-Mergers, Acquisitions, and Predation

In 1914, Congress supplemented the Sherman Act by passing the Clayton Antitrust Act, which prohibits:

1. Companies within the same field from hav­ing interlocking boards of directors (thus, essentially the same management)

2. Forms of price cutting (predatory pricing) or other pricing discrimination

3. Acquisition of stock or assets of one com­pany by another if the acquisition tends to lessen competition or to create a monopoly

Enforcement is carried out jointly by the Department of Justice, Antitrust Division, and the Federal Trade Commission.

fll The Civil Aeronautics Act and the Department of Justice

When the airline companies first appeared during the 1920s and 1930s, it was rightly presumed that they were subject to the same antitrust laws as everybody else. The Department of Commerce had jurisdiction over the railroads and regulated that industry through its agency known as the Interstate Commerce Commission (ICC). When commercial aviation began, what little regulation there was of the airlines was also administered in the Department of Commerce, first by the Aero­nautics Branch and then by the Bureau of Com­merce and finally by the ICC.

In 1938, as commercial aviation expanded and became more important to the nation, the airlines came under the special legislation of the Civil Aeronautics Act, applicable only to the air­lines, and that law was administered by the Civil Aeronautics Board (CAB). Although the Sherman and Clayton Acts did not specifically address the antitrust aspects of airline operation, the Federal Aviation Act of 1958 gave the CAB authority to approve all airline mergers and consolidations1 and granted certain exceptions from the Sherman Act and other antitrust laws.2 The broader question of whether, or to what extent, the airlines were sub­ject to the Sherman and Clayton Acts was an open one until finally settled in 1963.

The Justice Department had long maintained that it had antitrust enforcement authority over the airlines, and the DOJ brought suit against Pan American and W. R. Grace & Co., as well as their jointly owned subsidiary, Pan American – Grace Airways (Panagra). In defense, the airlines contended that the Civil Aeronautics Board had exclusive authority over airlines, including anti­trust matters, and that the Justice Department had no authority to bring the action. The lower federal court sided with the Justice Department, holding that Pan Am had violated the Sherman Act by combining with its subsidiary, Panagra, in agree­ing not to parallel each other’s South American routes, effectively agreeing not to compete. In Pan American World Airways, Inc. v. United States,3 the Supreme Court reversed the lower court holding and established that the CAB had primary jurisdiction over the airlines in matters of “unfair practices” and “unfair methods of compe­tition,” as well as to consolidations, mergers, and acquisitions. This became established law and remained so until the CAB was legislated out of existence effective January 1, 1985, by the provi­sions of the Airline Deregulation Act of 1978.

Before deregulation, mergers of airlines were rare. The largest was United Airlines and Capital Airlines in 1961. The norm was repre­sented by Delta’s acquisition of Northeast in 1972 based on the “failing airlines” doctrine of the CAB. Simply stated, the “failing airlines” doctrine described the CAB practice that pre­vented any airline bankruptcies during regulation by “allowing, encouraging, and arranging” for stronger carriers to absorb weaker ones.