Unfair Trade Practices

Unfair trade practices are governed by both state and federal law, and broadly encompass antitrust practices, patent, trademark, copyright laws, as well as consumer protection and non-competition regulations. What follows is a broad overview of the area of law as it applies to Utah and is intended only to provide a business-person with a general understanding of the subject matter. The applicable law is complicated and may subject a person or entity to both civil and criminal liability. Accordingly, a business-person should not rely on the information contained in this chapter; it is critical that a business person consult an attorney before embarking on any activity that may invoke concerns over unfair trade practices.

Unfair trade practices involving consumer protection is discussed in section E of this chapter, and intellectual property issues are also discussed this book. This section focuses more specifically on the regulation of antitrust activities by the State of Utah and the federal government. Utah’s antitrust and unfair trade practice laws including the Utah Antitrust Act,2 the Unfair Practices Act,3 and the Unfair Competition Act,4 largely mirror federal antitrust laws, namely the Sherman Antitrust Act5, the Clayton Act,6 and the Robinson-Patman Act.7 Unfair trade practices are additionally regulated by the Utah Truth in Advertising Act,8 the Federal Trade Commission Act,9 several industry specific regulations targeting fair trade practices in the film, gas products, and auto sales industries, and the common law.

Antitrust laws intend to advance free competition in the marketplace by prohibiting certain anti-competitive practices. Generally, antitrust laws seek to prevent acts that suppress or restrict competition especially where such acts inflate prices, restrict production, or control markets in a way that is detrimental to consumers. Both state and federal antitrust laws generally prohibit collusion among market participants attempting to control prices or eliminate competitors. For example, federal and state antitrust laws aim to eliminate horizontal and vertical price fixing arrangements, market allocation, bid rigging, group boycotts, covenants not to compete, exclusion or expulsion from membership in trade associations, resale price maintenance, and tying arrangements that adversely affect market competition. Engaging in these activities may be a violation of state and federal regulations and can subject individuals and businesses to both criminal penalty and civil liability.

 

PROHIBITED ACTIVITIES

General restraints of trade

Both the Utah Antitrust Act and the Sherman Act generally prohibit individuals and businesses from entering into contracts, combinations, or conspiracies in restraint of trade10—agreements to act where collusive parties intend to adversely affect the free market. Utah’s Antitrust Act is nearly identical to the Sherman Act and interpretation of the act is often guided by interpretation of the Sherman Act.11 Activities in violation of the Sherman Act likely subject individuals and entities to liability under the Utah Antitrust Act.12

The Sherman Act prohibits restraints of trade in interstate commerce only. Interstate commerce, however, is often interpreted broadly; for example supplying goods to retailers or dealers in different states, the communication of news between states, and the transportation of films between states are considered “interstate” commerce.13 Where the business activities in question affect interstate commerce may also satisfy the interstate commerce requirement and be actionable under the Sherman Act. In contrast, the Utah Antitrust Act does not impose an interstate commerce requirement; rather, it prohibits unfair trade practices affecting commerce occurring within Utah. Plaintiffs who seek relief under the Utah Antitrust Act must be a citizen or resident of the State of Utah.14

Agreements in restraint of trade do not need to be formal or written to violate the Sherman Act or the Utah Antitrust Act. Rather, circumstantial evidence from which a jury may infer an agreement existed may be enough to impose liability.15

Not all restraints of trade are unreasonable; likewise, not all are illegal.16 Rather, restraints of trade are sometimes lawful if they are connected to a legitimate business purpose and are economically efficient. Courts are fairly lenient when examining potential antitrust violations by employing what is called the “rule of reason test,” which subjects an entity to liability only upon a showing of both an unreasonable restraint of trade and an actual adverse impact on competition.17 However, some acts in restraint of trade are considered per se violations wherein proof of the act alone (without proof of an actual adverse economic effect) will subject an entity to liability. Price fixing, group boycotts, division of markets, and tying arrangements are typically considered per se antitrust violations.18 Importantly, because interpretations of Utah’s Antitrust Act are guided by federal court interpretations of federal antitrust laws, an act that would be considered a per se violation of the Sherman Act will likely be considered a per se violation of the Utah Antitrust Act.19 Horizontal Price Fixing

Antirust laws prohibit competitors from making agreements to raise, stabilize, set or otherwise affect prices. Acts of horizontal price fixing are usually considered per se antitrust violations—proof of an act of horizontal price fixing will subject an entity to liability, proof of an actual adverse market effect is not required to impose liability. For example, in Arizona v. Maricopa County Medical Society, an agreement between doctors in Maricopa County, Arizona (as part of a medical trade group) to set the maximum fees those doctors would seek from insurance plans for medical services provided to policyholders was found to be a per se violation of the Sherman Act.20 The court found the price restraint tended to provide the same economic rewards to all of the medical practitioners in the trade group “regardless of their skill, experience, training, or willingness to employ innovative and difficult procedures in individual cases.”21 Because such restraints could discourage market entry, experimentation, and entrepreneurial development, the Court held the agreement was a per se violation and did not require evidence of an adverse economic effect.22

Not only can entities be subject to liability for entering into agreements with competitors to set prices, agreements to set credit terms,23 discounts, and freight prices, or entering into purchase agreements intended to limit the supply of a commodity can subject entities to liability as well.

Vertical Price Fixing
Vertical price fixing arrangements involve agreements among manufacturers and distributors rather than direct market competitors. Typically a vertical price fixing agreement is one between a manufacturer and a group of distributors to terminate the distributorship of a particular distributor. Vertical price fixing arrangements will violate state and federal law if manufacturers and distributors are shown to have a meeting of the minds or a common scheme between them, and are generally held to a rule of reason standard (a plaintiff must prove actual adverse economic impact to bring a successful Sherman Act or Utah Antitrust Act claim).24

Agreements between a manufacturer and distributor that give a distributor the exclusive right to sell a manufacturer’s product within a given geographic area (so called exclusive distributorship arrangements) and agreements where a distributor agrees to resell the product of a single manufacturer (so called exclusive dealing arrangements) may be considered vertical price fixing arrangements that are prohibited by the Clayton Act, and in Utah may be enforced under the Utah Antitrust Act.25

Bid Rigging
Bid rigging schemes, where competitors engaged in a bidding process for a contract will agree in advance which among them will submit the winning bid, can violate both state and federal law. Bid rigging is typically viewed as being per se unlawful.26

Horizontal bid rigging schemes include: bid suppression, where competitors agree to withdraw a bid or refrain from bidding on a particular contract; courtesy bidding, where competitors agree to submit bids with inflated prices or unfavorable terms to create the appearance of competition and hide the existence of the inflated price of the seemingly reasonable bid; and bid rotation, where competitors submit bids but take turns as to which competitor will submit the lowest bid.

Vertical bid rigging schemes can also violate state and federal law. For example, collusion among manufactures and distributors to include only a particular manufacturers product in their bids in return for bonus payments may violate state and federal law.27

Group Boycotts
Antitrust laws frequently prohibit business entities from excluding their competitors from dealing in their products. Group boycotts can take on different forms. A group of distributors may not pressure a supplier to refrain from selling its products to other distributors outside of the group. Similarly, trade associations or trade groups may not intentionally exclude or expel an entity from membership with the intent of chilling that entity’s ability to participate in a given market.

For example, in Klor’s Inc. v. Broadway-Hale Stores, Inc., the U.S. Supreme Court found that a group of retailers, manufacturers, and distributors dealing in home appliances violated the Sherman Act when they agreed to refuse to sell to the plaintiff or to sell to the plaintiff only when conditioned on unfavorable terms at discriminatory prices.28 The court found the conspiracy was a per se violation of the Sherman Act and the violation would stand even if the defendants could show their actions were reasonable under the circumstances.29 Further, the violation was not defendable despite the fact that only one small business with little economic power had been affected.30

Under the Utah Antitrust Act, courts tend to focus on the intent of the conspirators in addition to the form of the boycott to determine if certain acts constitute a violation.31 For example, conspirators who engage in bribery schemes with the intent of affecting a market may be in violation of the Utah Antitrust Act.32

Group boycott violations can subject entities to both criminal and civil penalties.33

Group boycotts are often deemed per se illegal, however not all types of group boycotts are per se illegal.34 Per se violations generally involve a business (or businesses) with dominant market position that makes a concerted effort to cutoff a competitor’s access to supplies, facilities, or markets.35 Vertical group boycotts are not per se illegal and typically require evidence of actual adverse market affects to be actionable in court.36

Market Allocation
Agreements among competitors to divide customers or territories are commonly considered per se violations of Sherman act and the Utah Antitrust Act. These agreements may violate antitrust laws because they effectively give each competitor a monopoly in their defined (agreed upon) region of the market. For example, in Palmer v. BRG of Georgia, Inc., the U.S. Supreme Court found a market allocation agreement between companies wherein one company agreed to withdraw from the Georgia market in exchange for the other company withdrawing from the remainder of the U.S. market violated the Sherman Act.37

Tying Arrangements
Tying arrangements exists where an entity requires that another entity or an individual purchase one product in return for a contract involving another (desired) product.38 Some tying arrangements do not require the purchase of the tied product, but rather require the purchaser to refrain from purchasing the tied product from a different supplier. Tying arrangements deny free access to the market for the tied product and are often considered per se illegal if they substantially affect the market of the tied product and the seller has strong economic power.39 However, the Supreme Court has noted the “Court’s strong disapproval of tying arrangements has substantially diminished. Rather than relying on assumptions, in its more recent opinions the Court has required a showing of market power in the tying product.”40 Thus, in Illinois Tool Works, the Court determined that no violation could exist unless the plaintiff could show the defendant had market power in the tying product..41

Most tying arrangements involving the sale of commodities are further prohibited by the Clayton Act; violations of the Clayton Act may not require proof of an adverse impact to impose liability.42

Utah does not currently have a code provision that is directly comparable to Section 3 of the Clayton Act.43 However, the Utah Attorney General has prosecuted tying arrangements under Utah’ Antitrust Act. In addition, the Utah Motor Vehicle code prohibits tying arrangements in automobile financing.

Monopolization or attempts to monopolize
Both the Utah Antitrust Act and Section 2 of the Sherman Act prohibit monopolies, attempts to monopolize, and conspiracies to monopolize.45 A monopoly obtained through patented products, business skill or luck does not usually violate antitrust law.46 However, monopolistic mergers that substantially lessen competition or create a monopoly in either a product or geographic market can violate state and federal antitrust laws.47 While horizontal mergers are unlawful if they substantially lessen competition, vertical mergers and conglomerates may not raise the same issues and do not likely violate antitrust law.48

To determine if a given defendant has monopoly power, courts examine defendant’s market share, but may also consider barriers to entry, market conditions and econometric data.49

Attempted monopolization may violate state and federal antitrust laws where an entity has both the intent and power to monopolize a market. For example, in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., the Court found the decision of an owner of three ski resorts in Aspen, Colorado, to discontinue its participation with (the only) independent ski resort in Aspen in an interchangeable “all-Aspen” lift ticket, violated the Sherman Act as an attempt to monopolize because the jury concluded the owner of the three ski resorts had no legitimate business reason to discontinue its participation in the “all-Aspen” pass.50 The court held that although a business entity with monopoly power does not have a duty to engage in joint programs with competitors, the right is not unqualified; liability may be imposed where evidence of the effects on consumers the business entities involved supports a conclusion that the business entity had no legitimate reason to refuse to deal with another entity.51 In considering attempts at monopolization courts also consider impacts on consumers, and the extent to which unnecessarily restrictive acts impair competition.52

Interlocking directorships
An interlocking directorship exists where an individual serves on the board of directors or as a high level officer of two or more competing companies. The Clayton Act generally prohibits interlocking directorships where each of the two companies is worth at least $10-million.53

Price Discrimination
Sellers are generally prohibited from charging different prices to different buyers for commodities of similar quality and grade if the sales occur close in time and the effect of the discriminatory sales substantially lessens competition, or tends to create a monopoly. Price discrimination practices can violate both the Robinson-Patman Act and the Utah Unfair Practices Act.54

Utah’s Unfair Competition Act
Utah’s Unfair Competition Act prohibits companies from intentionally engaging in unfair, unlawful, or fraudulent business practices that harm the value of intellectual property and that constitute: patent, trademark, or trade name infringement, malicious cyber activity, a software license violation, or predatory hiring practices.55 A person or entity harmed by a violation of the Act may bring a private cause of action so long as the alleged violation of the act is reasonably related to the purpose of the act (to prevent unfair competition).56 To support a successful claim under Utah’s Unfair Competition Act, a plaintiff should allege facts supporting material diminution in value.57 When alleging trademark infringement, a successful claim should show that the alleged violation constitutes “intentional business acts or practices” which the court usually analyzes based on standards of “commercial use” under the Lanham Act.58

Unfair Competition under Utah Common Law
Not all unfair competition disputes are governed by statute alone. Judge-made law—common law—can also play a role. Under Utah common law, “unfair competition includes—but is not limited to—passing off, palming off, imitating, and causing or likely causing confusion or deception.”59 Unfair competition consists of a person or entity attempting to pass off the goods of one party as the goods of another. It is not usually not necessary for a plaintiff to demonstrate actual confusion between the products to impose liability, rather establishing a likelihood of confusion may be enough to impose liability.60

Industry specific trade regulations in Utah
In addition to the general unfair trade practices regulated by federal and Utah law discussed above, Utah has enacted several industry specific acts aimed at addressing unfair business practices in specific industries. These acts regulate trade practices in the gasoline products and motor fuels,61 music and film,62 automobile franchise,63 health spa,64 health insurance,65 consumer sales,66 telephone solicitation, secondary market, debt management, consumer credit, and automobile financing ndustries.

Liability for engaging in unfair trade practices

Both individuals and entities can be criminally penalized or civilly liable for violating state and/or federal antitrust laws. Antitrust violations can be investigated and (if necessary) prosecuted by federal or state agencies. In Utah, antitrust and consumer protection violations are enforced by the Division of Consumer Protection within Utah’s Department of Commerce.72 In addition, the Utah Attorney General’s office actively investigates and prosecutes state and federal anti-trust violations.73 Both the Utah Antitrust Act, and the Unfair Practices Act, empower the attorney general’s office with the ability to prosecute trade violations.

The Utah Unfair Practices Act provides that any person or the State of Utah may maintain an action to enjoin unfair trade practice violations. A plaintiff does not have to allege or prove actual damages to bring a claim under the Utah Unfair Practices Act. However where a plaintiff sustains and can prove actual damages, the Act allows for recovery of three times the amount of actual damages sustained and court costs. An individual or entity that knowingly violates the Utah Unfair Practices Act can result in misdemeanor charges for each violation and a fine of up to $5,000 and/or 12 months imprisonment.

The Utah Unfair Competition Act also provides for a private cause of action for persons who are injured by unfair competition. Plaintiffs may recover actual damages, costs, attorney’s fees, and in some cases, punitive damages.

The Utah Antitrust Act provides that the Attorney General may bring an action for injunctive relief, damages, and/or civil penalty against any individual who violates the Act.77 Individuals may be charged with a civil penalty of up to $100,000 for each violation of the act; entities may be charge with a civil penalty of up to $500,000 for each violation of the Act.78 The Utah Antitrust Act also provides for a private right of action for residents injured by or threatened with injury by violation of the Act, and allows for injunctive relief and damages, recovery of three times the amount of actual damages incurred as a result of the violation, costs, and attorney’s fees.79 Finally, anyone who violates the Act by engaging in price fixing, bid rigging, dividing markets, or group boycotts may be guilty of a third degree felony and may be subject to a fine of up to

$100,000 for individuals, or $500,000 for entities.80

Both state attorneys general and the US attorney general may prosecute antitrust violations.81 Penalties for Sherman and Clayton Act violations can be very severe, imposing liabilities for up to $1 million for individuals, and $100 million for business entities.82 In addition, Sherman Act violations can subject individuals to criminal penalties with up to ten years in prison.83 Individuals injured by antitrust violations may have private causes of action for injunctive relief, costs, attorney’s fees, and three times the actual damages incurred as a result of the violation.84 Conclusion

When dealing with other business entities, businesses operating in Utah should be careful to avoid engaging in agreements with the intent of unfairly affecting inter and intra state markets. These agreements can include agreements to divide market or agreements designed to hinder another entity’s ability to enter the market. Such agreements may subject businesses to both civil and criminal penalties.