Antitrust Law

Antitrust law – is the American law of preventing anticompetitive conduct by businesses in a market. Its equivalent outside of the US is competition law (see Competition Law). Anticompetitive conduct can be categorized into two main categories. The first is horizontal, or potentially collusive conduct, i.e., companies working together to cause negative market effects such as in mergers, cartels or joint ventures (this usually falls under Sec. 1 Sherman Act). The second is vertical, or potentially exclusionary conduct, i.e., companies working against each other to cause negative market effects such as in monopolizations and vertical contracts such as exclusive dealing, tying contracts or refusals to deal (this usually falls under Sec. 2 Sherman Act). In some cases, hybrid conduct can have both collusive and exclusionary elements.

Antitrust law is governed by federal and state statutes. This includes the Sherman Act (15 U.S.C. §§ 1–7), Clayton Act (29 U.S.C. §§ 52–53) and FTC Act (15 U.S.C. §§ 41–58). The Federal Trade Commission (FTC) is the main governing body in enforcing antitrust law. It publishes guidelines setting out general rules to interpret antitrust law and economics that are not binding, but generally considered persuasive by courts. These include the recent FTC Merger Guidelines 2023.

Civil antitrust suits can be filed both by federal or state actors (including the FTC and DOJ) as well as by private parties either in state or federal courts. Criminal antitrust enforcement is possible only by the DOJ. If a behavior is deemed anticompetitive by a court, remedies can include damages and penalties, divestiture of assets, entities or rights to intangible assets, and provisions for conduct such as non-discrimination provisions or mandatory licensing provisions.

For video game companies, antitrust law is particularly relevant during M&A deals (see M&A). Any potentially anticompetitive conduct that affects US domestic or foreign commerce causes applicability of American antitrust law, regardless of where the conduct occurs or which nationality the parties have.[1] A notorious recent example of this is the FTC’s attempt to block the Microsoft-Activision Blizzard merger. The Hart-Scott-Rodino Antitrust Improvements Act requires companies involved in mergers over a certain dollar threshold (US$119.5M in 2024) to notify the FTC and DOJ in advance. Only after the agencies review and clear the merger is it allowed to proceed. After Microsoft notified its proposed US$69B deal with Activision, the FTC launched an investigation. It held that the vertical merger between the two companies would substantially lessen competition, as Microsoft would use Xbox, Game Pass and its cloud gaming services to suppress competitors, particularly Sony.[2] It issued a temporary restraining order preventing Microsoft from closing the deal until July 14, 2023. To further extend this period, the FTC filed for a preliminary injunction with a US District Court. However, the district court judge in the matter refused to grant the FTC’s request, holding that a substantial lessening of competition was not shown to be likely.[3] The FTC appealed to the Ninth Circuit Court of Appeals, which upheld the lower court’s decision and denied injunctive relief.[4] After this, the FTC initially withdrew their challenge of the merger and Microsoft closed the deal in October 2023. However, the FTC has now reopened its challenge, which litigation pending before the Ninth Circuit Court.

Whether a company’s conduct is anticompetitive under Sec. 1 of the Sherman Act can be determined in two ways: Some conduct is so obviously detrimental to competition that it is considered per se unlawful, or presumed to be anticompetitive. This particularly includes horizontal actions between competitors, such as price fixing, bid rigging and group boycotts. If conduct is not per se unlawful, it is examined under the rule of reason. Under this rule, a plaintiff must show that a conduct causes harm in restraint of trade according to the facts peculiar to the business to which the restraint is applied.[5] This is the case because not every restraint of trade is harmful; in some cases, it can even promote competition.

The Clayton Act was enacted particularly to deal with mergers that substantially lessen competition or tend to create a monopoly (Sec. 7 Clayton Act). There are two main types of mergers: horizontal mergers between companies at the same level of a supply chain and vertical mergers between companies on different levels of a supply chain. In horizontal mergers, there is a structural presumption that a merger substantially lessens competition if it causes control of an undue percentage share of the relevant market.[6] To assess whether this is the case, one must first define what the relevant product and geographic market is. This is a major step in antitrust analysis. For example, whether the market for a video game company is a certain type of game, video games generally, or entertainment as a whole significantly alters the assessment of how high a company’s share in this market is. A market is determined by whether products are reasonably interchangeable. Using the SSNIP test, it is assessed whether customers would seek out a different product if there was a small, but significant increase in price by a hypothetical monopolist.[7] The smallest possible market in which a SSNIP would be successful is the relevant market. Then, the market concentration is determined using the Herfindahl-Hirschman Index (HHI), which assesses company’s market shares.[8] If the presumption is not fulfilled, market power and anticompetitive effects are assessed individually.

There are, however, a number of exemptions and modifications to antitrust law. These are mainly made for certain areas of business, including sports and the media. For example, the joint sale of media rights by professional sports leagues is exempt from antitrust review under 15 U.S.C § 1291. There is also a broad exemption for Major League Baseball under Federal Baseball Club v. National League, 259 U.S. 200 (1922), but this is held to be an aberration and inapplicable to other sports.[9] Additionally, labor unions are not subject to antitrust review (Sec. 6 Clayton Act).

[1] Sec. 6a Sherman Act; DOJ and FTC, Antitrust Guidelines for International Enforcement and Cooperation (2017), 3.

[2] FTC, Microsoft and Activision, Administrative Part 3 Complaint, Docket No. 9412, para. 14.

[3] FTC v Microsoft, 2023 WL 4443412 (N.D. Cal. July 10, 2023).

[4] FTC v Microsoft, Case No. 23-15992 (9th Cir. 2023).

[5] Standard Oil Co. of New Jersey v United States, 221 U.S. 1 (1911); California Dental Assn. v FTC, 526 U.S. 756 (1999). Herbert Hovenkamp, ‘The Rule of Reason’ [2018] 70 Fl. L Rev. 81.

[6] United States v Philadelphia National Bank, 374 U.S. 321 (1963); FTC, Merger Guidelines (2023), 2.1.

[7] FTC, Merger Guidelines (2023), 4.3.A.

[8] FTC, Merger Guidelines (2023), 2.1.

[9] Aff’d George Earl Toolson v New York Yankees, Inc., et al., 346 U.S. 356 (1953); Curt Flood v Bowie Kuhn, et al., 407 U.S. 258 (1972). See also Samuel Alito Jr., ‘The Origin of the Baseball Antitrust Exemption’ [2009] 34(2) J. Sup. Ct. Hist. 183.