Competition law
Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust law, anti-monopoly law, and trade practices law; the act of pushing for antitrust measures or attacking monopolistic companies is commonly known as trust busting.
The history of competition law reaches back to the Roman Empire. The business practices of market traders, guilds, and governments have always been subject to scrutiny, and sometimes severe sanctions. Since the late 20th century, competition law has become increasingly global. The two largest and most influential systems of competition regulation are United States antitrust law and European Union competition law. National and regional competition authorities across the world have formed international support and enforcement networks.
Modern competition law has historically evolved on a national level to promote and maintain fair competition in markets principally within the territorial boundaries of nation-states. National competition law usually does not cover activity beyond territorial borders unless it has significant effects at the nation-state level. Countries may allow for extraterritorial jurisdiction in competition cases based on so-called "effects doctrine". The protection of international competition is governed by international competition agreements. In 1945, during the negotiations preceding the adoption of the General Agreement on Tariffs and Trade in 1947, limited international competition obligations were proposed within the Charter for an International Trade Organization. These obligations were not included in GATT, but in 1994, with the conclusion of the Uruguay Round of GATT multilateral negotiations, the World Trade Organization was created. The Agreement Establishing the WTO included a range of limited provisions on various cross-border competition issues on a sector specific basis.
Elements
Competition law, or antitrust law, has three main elements:- prohibiting agreements or practices that restrict free trading and competition between business. This includes in particular the repression of free trade caused by cartels.
- banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price gouging, and refusal to deal.
- supervising the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to "remedies" such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.
History
Roman legislation
An early example was enacted during the Roman Republic around 50 BC. To protect the grain trade, heavy fines were imposed on anyone directly, deliberately, and insidiously stopping supply ships. Under Diocletian in 301 A.D., an edict imposed the death penalty for anyone violating a tariff system, for example by buying up, concealing, or contriving the scarcity of everyday goods. More legislation came under the constitution of Zeno of 483 A.D., which can be traced into Florentine municipal laws of 1322 and 1325. This provided for confiscation of property and banishment for any trade combination or joint action of monopolies private or granted by the Emperor. Zeno rescinded all previously granted exclusive rights. Justinian I subsequently introduced legislation to pay officials to manage state monopolies.Middle Ages
Legislation in England to control monopolies and restrictive practices was in force well before the Norman Conquest. The Domesday Book recorded that "foresteel" was one of three forfeitures that King Edward the Confessor could carry out through England. But concern for fair prices also led to attempts to directly regulate the market. Under Henry III an act was passed in 1266 to fix bread and ale prices in correspondence with grain prices laid down by the assizes. Penalties for breach included amercements, pillory and tumbrel. A 14th-century statute labelled forestallers as "oppressors of the poor and the community at large and enemies of the whole country". Under King Edward III the Statute of Labourers of 1349 fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. On top of existing penalties, the statute stated that overcharging merchants must pay the injured party double the sum he received, an idea that has been replicated in punitive treble damages under US antitrust law. Also under Edward III, the following statutory provision outlawed trade combination.In continental Europe, competition principles developed in lex mercatoria. Examples of legislation enshrining competition principles include the constitutiones juris metallici by Wenceslaus II of Bohemia between 1283 and 1305, condemning combination of ore traders increasing prices; the Municipal Statutes of Florence in 1322 and 1325 followed Zeno's legislation against state monopolies; and under Emperor Charles V in the Holy Roman Empire a law was passed "to prevent losses resulting from monopolies and improper contracts which many merchants and artisans made in the Netherlands". In 1553, Henry VIII of England reintroduced tariffs for foodstuffs, designed to stabilize prices, in the face of fluctuations in supply from overseas. So the legislation read here that whereas,
Around this time organizations representing various tradesmen and handicrafts people, known as guilds had been developing, and enjoyed many concessions and exemptions from the laws against monopolies. The privileges conferred were not abolished until the Municipal Corporations Act 1835.
Early competition law in Europe
The English common law of restraint of trade is the direct predecessor to modern competition law later developed in the US. It is based on the prohibition of agreements that ran counter to public policy, unless the reasonableness of an agreement could be shown. It effectively prohibited agreements designed to restrain another's trade. The 1414 Dyer's is the first known restrictive trade agreement to be examined under English common law. A dyer had given a bond not to exercise his trade in the same town as the plaintiff for six months but the plaintiff had promised nothing in return. On hearing the plaintiff's attempt to enforce this restraint, Hull J exclaimed, "per Dieu, if the plaintiff were here, he should go to prison until he had paid a fine to the King". The court denied the collection of a bond for the dyer's breach of agreement because the agreement was held to be a restriction on trade. English courts subsequently decided a range of cases which gradually developed competition related case law, which eventually were transformed into statute law.Europe around the 16th century was changing quickly. The New World had just been opened up, overseas trade and plunder was pouring wealth through the international economy and attitudes among businessmen were shifting. In 1561 a system of Industrial Monopoly Licenses, similar to modern patents had been introduced into England. But by the reign of Queen Elizabeth I, the system was reputedly heavily abused and used merely to preserve privileges. It did not promote innovation or help improve manufacturing. In response English courts developed case law on restrictive business practices. The statute followed the unanimous decision in Darcy v. Allein 1602, also known as the Case of Monopolies, of the King's Bench to declare void the sole right that Queen Elizabeth I had granted to Darcy to import playing cards into England. Darcy, an officer of the Queen's household, claimed damages for the defendant's infringement of this right. The court found the grant void and that three characteristics of monopoly were price increase, quality decrease, the rise in unemployment and destitution among artificers. This put an end to granted monopolies until King James I began to grant them again. In 1623 Parliament passed the Statute of Monopolies, which for the most part excluded patent rights from its prohibitions, as well as guilds. From King Charles I, through the civil war and to King Charles II, monopolies continued, especially useful for raising revenue. Then in 1684, in East India Company v. Sandys it was decided that exclusive rights to trade only outside the realm were legitimate, on the grounds that only large and powerful concerns could trade in the conditions prevailing overseas.
The development of early competition law in England and Europe progressed with the diffusion of writings such as The Wealth of Nations by Adam Smith, who first established the concept of the market economy. At the same time industrialization replaced the individual artisan, or group of artisans, with paid laborers and machine-based production. Commercial success became increasingly dependent on maximizing production while minimizing cost. Therefore, the size of a company became increasingly important, and a number of European countries responded by enacting laws to regulate large companies that restricted trade. Following the French Revolution in 1789 the law of 14–17 June 1791 declared agreements by members of the same trade that fixed the price of an industry or labor as void, unconstitutional, and hostile to liberty. Similarly, the Austrian Penal Code of 1852 established that "agreements... to raise the price of a commodity... to the disadvantage of the public should be punished as misdemeanors". Austria passed a law in 1870 abolishing the penalties, though such agreements remained void. However, in Germany laws clearly validated agreements between firms to raise prices. Throughout the 18th and 19th centuries, ideas that dominant private companies or legal monopolies could excessively restrict trade were further developed in Europe. However, as in the late 19th century, a depression spread through Europe, known as the Panic of 1873, ideas of competition lost favor, and it was felt that companies had to co-operate by forming cartels to withstand huge pressures on prices and profits.
While the development of competition law stalled in Europe during the late 19th century, in 1889 Canada enacted what is considered the first competition statute of modern times. The Act for the Prevention and Suppression of Combinations formed in restraint of Trade was passed one year before the United States enacted the Sherman Act of 1890. Likely the most famous legal statute on competition law, it was named after Senator John Sherman who argued that the Act "does not announce a new principle of law, but applies old and well recognized principles of common law".