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Antitrust Law Case Study

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Updated: Jan 23rd, 2020

This is a civil action brought by the government pursuant to Section 4 of the Sherman Act. The contention of the government in this case was grounded on the reasoning that the appellee had used unlawful means to monopolize interstate commerce. The argument of the government in the case was that the monopoly by Cellophane was further in contravention of Section 2 of the Sherman Act.

The trial court in the case held that the market to be observed in the determination of the flexibility of packaging materials had to be observed in regard to the competition dynamics. The market, therefore, played a role in preventing the appellee in the possession of monopoly of the market. The trial court dismissed the appeal accordingly.

The issue before the appellate court was to determine whether alleged monopolist tendencies of the company violated Section 2 of the Sherman Act.

The issue was closely coupled with a determination of whether the company enjoyed a monopoly in competition and the assigning of given prices. The determination of the court was to be based on the reasoning that the commodities that are sold must be of a different character (Cefrey 64).

The case was originally instituted in the District Court of the United States in the District of Columbia. The case was further transferred to the District of Delaware. The defendant, E.I. DuPont, was a corporation with its operations in Delaware. Its successor was E.I. DuPont Cellophane Company. The company had all along concentrated on the sale of cellulose in the form of films and in the form of bands.

The company entered into the business of manufacturing cellulose in 1923. Its collaboration with the La Cellophane Company, which was based in France, was a new twist in its operations. The company was re-incorporated to include the subsidiary company in 1929. DuPoint subsequently took over the operations of the company from 1936 onwards.

The plaintiff in this case expounded the meaning of economic and legal concepts put forward in the case. There are several theories put across by the plaintiff, although the final determination of the case has been left in the hands of the plaintiff. The legal and economic theories of monopoly were strictly put across in the sense that a line was to be drawn between the two.

It was the plaintiff’s case that the defendant engaged in acts that were prohibited under the Sherman Act. The plaintiff further argued that the monopoly had legal and economic repercussions. Several philosophies to affirm the argument made by the plaintiff were considered. The disagreement in the economic and legal concepts involved in this case was presented for consideration.

The consideration had provoked various disagreements in the United States today. The economic discussion follows a need to breach the gap between the legal and economic theories of monopoly. The discussion in the case was later supported by the agreement in the economist’s world that both types of monopoly are restricted to competition and in a free market; it is easier to determine the operation of one type.

The plaintiff in this case endeavored to distinguish the two concepts. The contrast between the legal and economic concepts of competition and monopoly has a broad effect in the markets where there are substitute products. The discussion was solely based on the coalescence between the old concepts of economy and the new ones.

It was the plaintiff’s case that the recent economic advancements have presented situations that require strong regulatory mechanisms to avoid harsh monopoly in the markets. Though the differences between the reasoning of the courts and the economists were evident, the issue of monopoly was cutting across. The economists had a term to define the monopoly, while the courts termed the monopoly as a major violation of the Sherman Act.

The plaintiff stated that the varying differences between the definitions of the defendant’s acts were to be construed in the favor of the plaintiff (Letwin 22). The plaintiff engaged in a lengthy discussion designed to prove the case against the defendant.

The issue of perfect competition as opposed to pure monopoly also emerged in this case. The terms are to be used in their actual meaning without interchanging them to introduce semantic interpretation. The two extremes between perfect competition and pure monopoly should be understood in a wider definition (Cefrey 33).

The plaintiff in this case sought the understanding of the legal and economic concepts to aid the court in arriving at both an economically sound decision, as well as a decision that could be a solid precedent.

The influence of the defendant’s goods in the market alleged to have been monopolized was brought to the attention of the court. In the wake of technological considerations, the issue of monopoly could be seen from a different perspective. Pure competition and monopoly have gained a new meaning in a situation whereby the market is not physical in nature.

In the sense of markets that entail imperfect competition, the interest of the consumers is ignored while the big companies enjoy a sizeable deal of the profits. All market situations can fall short of pure competition and find themselves in the whims of monopolistic competition.

The monopolistic trends in this case were promoted by the defendant who engaged in a situation whereby many sellers trade in products in different categories, but their monopoly is highly pronounced. The plaintiff asserted that the oligopolistic behavior of the producers was a perfect controvert to the desired intention of the antitrust laws.

The defendants were of the view that there are multiple benefits attributed to the use of oligolistic competition. Though there were proposals by the defendant that the concept of workable competition could be used, it is still clear that such agreements were not in line with the Sherman Act (Colino 14).

Monopoly in the sphere of competition was put to test in this case whereby the court was forced to consider some of the major theories in an attempt to arrive at a fair decision. The plaintiff defined some of the major terms in respect to pure monopoly. It was the submission of the plaintiff that pure monopoly could occur in cases where the buyer is not in a position to consider the substitute products.

The test of a marketing concept that benefits the society is the theoretical perspective that economists put into consideration. The defendant failed to regulate the flow of products in the market, thus it was evident that the company enjoyed a monopoly. The new products in the markets could not get a chance because the defendant employed monopolistic means to ensure that the market remained solely its monopoly.

The fact that an old company had a wider sense of influence is the position that the new entries in the market find themselves in. According to the plaintiff’s arguments, the products were supplied without substitutes and the consumers were adversely affected by the unhealthy monopoly and competition.

The plaintiff in this case clearly observed that the Sherman Act does not define the scope of competition. The purpose of the passing of the Sherman Act by the United States Congress was to preserve the freedom of buying and selling goods. In addition, the Act was to protect the innocent sellers from any form of restraints and monopolies (Letwin 41).

The intention of the Congress as put forward by the plaintiff was to make sure that secure competition is promoted without any form of monopolies. The freedom of trade was in the light of the developments designed to secure the markets whereby the trade should take place. The plaintiff in this case further asserted that Cellophane offered products that were substantially tangible for sale to the public.

The market for other products was in this sense adversely influenced, thus portraying the products of the defendants as the best products in this case. The monopoly powers were critical in the market delimitation. The question of whether the defendant controlled the market and prices was necessary to analyze the trends of the product distribution in the market.

The plaintiff requested the court to determine whether there was any form of control by the defendant’s company on the nature of products in the market and the different ways of determining the price of each of the products.

The burden of proof in this case was on the government since it was alleged that the defendant was using the monopoly to influence the markets and prices. It was important to ascertain whether there was a point of economics concepts applying in the record given by the defendant and the plaintiff in court (Cefrey 92).

Identify which antitrust law(s) were violated in this case

The facts given in the case provided many instances whereby the Sherman Act was violated. The court applied a broad sense of the Sherman Act. Section 2 of the Sherman Act provides that in an event that a person takes part in any form of monopoly, that person will be deemed guilty under the Sherman’s Act.

The act of monopoly in the case above was based on the understanding that the defendant engaged in acts that led to the diminishing of healthy competition, thereby leading to a situation where others are hindered from taking lawful trade. The most common element in these cases is that the other producers of the similar products in the market are hindered from accessing the customers from the same vantage point.

Any act that imposes the issue of unhealthy competition in the markets is undesirable and Section 2 of the Sherman Act makes it unlawful. The acts are, therefore, unlawful in the strict sense of Section 2. Although the Act does not offer an elaborate definition of monopoly, it is clear that this entails something that is in the judgment of the consumers more than extraordinarily successful.

This may be summed up to mean that similar acts are designed to make it impossible for other parties to get access to the market. The test to determine whether Cellophane engaged in the unlawful monopoly was based on the control and the dominance of the market. It is unlikely to talk about monopoly without the essential element of control or dominance.

The guilty party must exhibit a level of control over the market. The power of monopoly is diverse and includes situations whereby the guilty party is able to influence the prices and limit any form of competition. The Sherman Act makes sure that any form of undue control on both the market and the prices is dealt with.

The Act was enacted to enhance a level playing ground for both new and old companies in the markets. Any move by a company to unfairly regulate or dominate to eliminate competition is undesirable and courts of law have made it clear that they do not intend to entertain the acts of such companies (Cefrey 73).

The defendant in this case used all the necessary powers to ensure that the prices in the market were motivated by the influencing nature of their products. The packaging of the products was based on different companies, but the monopoly was evident at all times. The employment of other companies to complete the packaging was a limiting factor as far as competition was concerned (Jacobson and American Bar Association79).

It was clear that no one in the market would make Cellophane without the full access of the defendant’s techniques. This meant that the monopoly continued since the company could not offer their technique of manufacturing to other parties, apart from the ones they had license to use the patent rights of the company.

The defendant argued that it was incorrect for the plaintiff to assert that the defendant was guilty of monopoly because the wrapping materials were provided by another company. The defendant requested the court to treat the monopoly and price control as intertwined. It was essential to consider the issue of price control, competition, and monopoly in one breath in order to establish a violation under Section 2 of the Sherman Act.

The question of limiting competition is inconceivable without the control of prices. Dealing with other products that are not the subject of the license in the assignment presents an intricate question on the nature of competition and how prices in that case may be interfered with. It is possible to have a classic monopoly in patents and the licensing.

This can be easily built from the agreement that the patent holder and the licensed party enter into. On the other hand, the violation of the Sherman Act must put into consideration the place where the act took place. A retailer may be considered guilty of monopoly, while the monopoly is not a making of the retailer but it is due to the location of the retailer’s business (Cefrey 34).

The plaintiff in this case was to establish that there was a strict control of the prices of the Cellophane products. Failure to raise such a possibility means that the defendant was not guilty. A question of fact was raised requiring the plaintiff to adduce evidence showing that there was a violation of the Sherman Act through the defendant’s acts.

Although the products of the company have been priced higher, more concrete evidence was required. The question of whether there was the creation of competition or destruction of competition was addressed with key emphasis placed on the role of the defendant in the entire proceedings to prove the guilt of the accused (Colino 61).

The proof of guilty under the Sherman Act is a matter of evidence and the government in this case was put at task to show how the accused had monopolized the operations. It is worth noting that the Sherman Act was enacted to protect the well-being of the consumers, as well as making sure that the producers are not slapped with suits that are very frivolous.

The dynamic of the markets in the day-to-day setting should be understood. The control of the market may be hard to prove bearing in mind that the markets are changing. With the diverse modes of creating a market, the consumer could be in control of the market in many instances.

The characteristics of the markets at the time of the framing of the Act have changed. It is, therefore, unlikely to expect the Sherman Act to capture the markets created by technological advancement (Cefrey 46).

Product market

Product market in this case makes reference to the specific goods that the defendant company was dealing with during the time of the alleged commission of the Sherman offense.

The market was diverse in the sense that some of the subsidiary companies were offered an opportunity to sell the Cellophane products in other parts of the world. The product market was, therefore, not dominated by DuPont since a lot of the packaging was left in the hands of the foreign companies. It means that many of the products were sold in a wide market, although the most affected people were the United States citizens.

The product market was not limited to the United States because other countries were highly interested in the consumption of the goods. In this sense, the goods were bought by both the retailer and business people across the world. The establishment of the final consumers of the products that were produced by DuPont was not an identifiable since the product market was diverse.

The product market is based on the existence of the market at a given point in time; it is possible to have a lot of product markets in many places. The demand and supply aspects of a product may call for more markets being established to deal with the same nature of the products (Colino 98).

Geographical market

The geographical market is the frame of the location. The scope of the operation of a certain entity in a given region is defined by the geographical marks. The geographical mark is where the business entity is located and the place of operation. In the current case, the place of operation was across the world, but the place of operation was in the United States.

The company’s main operations were in the United States whereby it was incorporated. The subsidiaries that were licensed by the defendant were in other countries. Therefore, it is clear that the company had its operations in the United States, but the geographical market was not easily determined since its products were sold all over the world.

At one time, the operations of the company were joined with those of a French company. The geographical market in the United States was the biggest in size. It is not easy to get a clear definition of the operations of the company in a company where the products are recognized across nations. The only geographical location that one can identify is the one that indicates the incorporation or area of operation of the company (Colino 98).

Actual and potential sellers

In a product market, the sellers are classified into two classes. They could be real in the sense that they are selling the products or they have sold them before. Actual sellers exist in the product market and they are engaged in making sure that the buyers are handled.

Actual sellers are very important since they orient the potential sellers. On the other hand, potential sellers are those that have not taken part in active selling, but they are aiming at joining other sellers. They could be in wholesale or in small scale. The time of sale is the crucial part used in identifying actual and potential sellers. A potential seller has the determination of taking part in the selling, but the seller is yet to start selling.

The essence of a well regulated market entails both the potential and actual sellers. For purposes of succession, a potential seller takes the place of the actual seller.

Having both actual and potential sellers builds healthy competition in the market, which benefits the buyers and other stakeholders. The continuity of the market is promoted and the buyers do not have to worry about the forces that may affect the market in the future days (Cefrey 45).

Actual and potential buyers

The buyers in a product market are in the form of the potential and actual buyers. Actual buyers have already established a relationship with the sellers in the market. They are known in the market and the sellers are aware of the distinct tastes and preferences. The established relationship is based on the consistency of a given seller in appearing to a given buyer with the same product.

The actual buyers are identified with certain products. Potential buyers are not known to the actual sellers. Their determination and existence in the market is to spot the products that are suitable and those that they can buy in the future. They are not buyers since they have the expression of willingness, but they have not yet engaged in a constructive mode of buying.

The potential factors in each case are different, but the mode of transactions is the same. In the present case, DuPont had a lot of actual buyers, but it was having some as potential buyers. The progress of the company in the United States of America and other parts of the world clearly indicates that the company enjoys a wide range of potential buyers (Colino 74).

Spot market

A spot market means any market that has not been identified for purposes of selling and buying. A spot market is mainly available for the consideration of the seller. In many cases, the seller identifies the market and makes the effort of ascertaining the capacity that it can hold at a given time.

Many companies invest in research whereby they identify the diversity of a given market in the sense of the strengths and the weaknesses that they might encounter. With such an analysis, new products are created geared towards establishing the potential and actual sellers in a given place.

A spot market is developed depending on the reaction of the buyers in the first stages of the market research. A spot market compared to an actual market exists only when there are chances of other parties developing interests, thus taking part in the search for the market. In a nutshell, a spot market exists in theory and it is different from the product market (Cefrey 76).

Summary of the judgment

In the judgment, the court sought to establish whether DuPont had violated any antitrust law. Specific reference was made to Section 2 of the Sherman Act. The court was of the view that the wording of Section 2 of the Sherman Act required strict proof and could not be understood by making general phrases.

It was the plaintiff’s duty to adduce evidence to show that the defendant engaged in a conduct that was in promotion of monopolization. The court observed that without the said evidence, the case was to be dismissed without consideration of the consequences to the plaintiff and the individuals aggrieved.

The section of the law must be coupled with the essential facts analogous to those that Sherman Act would apply (Bergh and Camesasca 68).

The facts were to be read in the light of Section 2 of the Sherman Act. The essential facts that show that the defendant was in control of the market dynamics were considered in the issues before determination. In the court, there was an admission by the witness brought by the plaintiff that the defendant was a transparent company that dealt in selling packaging materials.

The court took the time to analyze a table that was provided demonstrating the quality of the products made by DuPont. It was evident that the quality of the products that were made by the defendant placed it in a better position compared to other companies dealing with the same type of products.

This led to the court holding that the prominence of the defendant in the market was not based on unfair competition, but on the fact that the quality of products was outstanding. The prices of Cellophane were slightly lower than those of the competitors. It is common knowledge that the actual buyers would prefer cheaper quality products in the market where the high products that are cheaper are placed.

The court emphasized the point that Sherman Act was not applicable in a situation whereby the defendant was not engaging in unfair practices to defeat the interests of the emerging competitors. The Cellophane products did not bear any form of resemblance to the products paraded by other sellers.

It was established that the buyers would not find Cellophane products unique in comparison with other products of the same nature in the market, but they preferred the products all the same. The physical properties were not the same, but the products were designed to serve the same purpose.

The inference by the buyers of DuPont products indicated that it was the reputation of the company that made it easy to market its products in all markets. Producers used to vary the prices of their products with time. The court opined that the defendant could not be held liable for unfair competition, while there was evidence indicating that the company was not engaged in competition for the packaging materials.

Notwithstanding the foregoing discussion, the court was of the opinion that the merging of DuPont with the French company was desired to maintain dominance over the sale of Cellophane. The merging saw a new twist whereby the products of the company were manufactured with new skill and technique. The nature of information in the process of manufacturing was treated with a lot of secrecy and confidentiality.

Its contracts with the foreign companies were made in a way that they maintained their continental market. It was the opinion of the court that DuPont had no authority to set the prices arbitrarily.

The court was keen to point out that there was a great misconception of antitrust laws. A monopolistic sense of minimizing profits was not equivalent to price rises. The court decided that the lowering of profits was not a violation of any antitrust laws (Bergh and Camesasca 87).

The court was of the opinion that the misconception of the antitrust laws was very predominant, but the alleging parties did not endeavor to adduce evidence showing the violation of the stated laws. In the court’s opinion, there was adversity for the control of the Cellophane market. DuPont had the biggest share in the market, but this did not mean that it had violated any antitrust law.

The holding of a bigger portion was interpreted by the court to mean that the defendant was guilty of monopolization. The court clearly stated that it was not a conclusive defense because the defendant had licensed the patent rights to other companies.

The court observed that DuPont was placed in a position whereby it had powers to withdraw the licenses if it had evidence that the subsidiary companies were using them in contravention of the antitrust laws (Bergh and Camesasca 28).

The competition that the Sherman Act sought to regulate was core and Cellophane having more sellers in the market was a fundamental breach of the Sherman Act. The monopoly could not be allowed to prevail since the unprotected public was likely to suffer a great damage. The issue of profit making was geared towards benefiting the company at the expense of the public.

To safeguard the interests of the unsuspecting public, the court found that the act of having many sellers in the market could amount to an unfair competition. Charging a lesser amount of money on products that were of high quality was a move geared towards maintaining monopoly (Bergh and Camesasca 16).

Rebuttal to the judgment

The holding in this case was against the defendant. The application of the antitrust laws in the day-to-day guarding of violations should be applied with due caution. Court decisions ought to foster an economic sense to promote free trade, instead of issuing judgments that gag the free market. This should be done by ensuring that all parties in the market compete on the same level (Jacobson and American Bar Association 87).

Courts should not place any parties at a disadvantage, while letting others enjoy the monopoly of their products. In the case above, the court ought to have engaged in pre-litigation negotiations to give the defendant an opportunity to explain the reasons for lowering the prices. The court case should have been the last resort in the given instance bearing in mind that some harsh decisions may adversely affect a given seller.

There is widespread expenditure in the cases that governments are instituting against different entities as a move to protect the interests of citizens. Some of the decisions have proved to be a waste of resources and the tax payers’ money. In the consideration of the decisions reached before by the courts of law, it is clear that there is a complete disregard for the several dynamics of the market forces.

There are several dangers posed to the existing market going by the court’s decision reached in the above case. The effects range from having unfair regulation of the already established business entities to complete removal of a business from operating given the harsh penalties meted on the business.

It is clear that Sherman Act was crafted with the desire to regulate businesses against any forms of monopoly, which is undesirable in ensuring that new entities in a market are in the same footing with the older entities. It is a key Act if the sections of the law are to be applied with the minimum implications. In many situations, it is important to note that the markets are supposed to enjoy minimum regulations.

In other words, markets should be left to regulate themselves, and outside regulation by the courts or any other body should be a matter of the last resort. It means that the intents of the market should be put into consideration when coming up with any decision (Jacobson and American Bar Association 77).

Any form of restraint could have far reaching effects on the well-being of the markets in the sense that it may unnecessarily restrain the strong entities. The law should not be seen to impose an unnecessary form of restraints on the already existing entities. Instead, there should be incentives to promote the existing businesses. There has been a wide scope of the protection, which is not applicable in the new markets.

The markets should be allowed to regulate themselves. This can be reached by making sure that the monopoly state is determined after application of many tests. It has been established that the competitiveness of a market plays a key role in determining the prices of commodities in the markets. It is through competition that many of the entities in the market find their way in a market.

The courts of law have a role to play in making sure that the applicability of the law is not acting as a hindrance to the flow of goods and services in the market. The liberalization of the market is the most essential feature in a market because it ensures that freedom of willing seller, willing buyer is promoted.

Unless the courts of law interpret the law to promote free markets, there will be an imposition of undesired constraints and both buyers and sellers will avoid markets (Jacobson and American Bar Association 89).

The judgment ought to have studied the dynamics of the market before holding against the defendant. There was a substantial failure on the part of the court in reaching its decision. It is always essential for the court to ensure that there is a balance between the prayers of the plaintiff and doing what is economically sound.

Several safeguards should be imposed in cases whereby the interests of the plaintiff are adverse to the economic needs of a given market. This means that in the present event, the court should have introduced a condition to settle the situation. In some cases, it is important to allow the parties to settle their matters without the court having to determine the matter.

In so doing, the court makes sure that the parties make determinations regarding their rights without letting the court determine the outright winner and loser. This is essential since it determines the rights of different parties, while putting the prevailing circumstances into consideration. The inherent consequences of the said decision are that it affected the proper functioning of the market.

Laws that have a direct impact on the economic setting should be interpreted with a lot of care to ensure that there is coexistence among various players in the market. There should be coexistence between the rights of the consumers in the markets and the interests of other business entities in the market. The court in this case was supposed to ensure that the remedies under the Sherman Act were interpreted to favor all the parties involved.

The appellant in this case proved its case within the standards that were provided for under the Sherman Act. This case demonstrates a scenario whereby some of the decisions before courts do not make economic sense. Such decisions should not be entertained since they pose economic challenges whenever they are allowed to take effect (Jacobson and American Bar Association 80).

For instance, such judicial decisions act as deterrents to any business entity that wishes to join the market, as well as hindering the existing firms from growing expanding and forming mergers in the fear that they will be said to be monopolistic.

Works Cited

Bergh, Roger van den, and Peter D. Camesasca. European Competition Law and Economics: A Comparative Perspective, Antwerpen: Intersentia, 2001. Print.

Cefrey, Holly. The Sherman Antitrust Act: Getting Big Business under Control, New York, NY: Rosen Publishers Group, 2004. Print

Colino, Sandra Marco. Competition law of the EU and UK, Oxford: Oxford University Press, 2011. Print.

Jacobson, Jonathan M., and American Bar Association. Antitrust law Developments. 6th edn. Chicago, IL: Section of Antitrust Law, ABA, 2007. Print.

Letwin, William. Law And Economic Policy in America: The Evolution of the Sherman Antitrust Act, Chicago, IL: The University of Chicago Press, 1981.Print

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