Recently, restaurants have been finding themselves dealing with a type of lawsuit not commonly seen in the restaurant industry. While attempting to deal with the rising costs of doing business with increasing minimum wages, paid sick leave, and mandated health care, some restaurants have found themselves accused of violating California and Federal Antitrust laws. To prepare for these new accusations, we want to provide restaurants with some basic information about antitrust law. This will help you identify potential issues that arise in this area of the law and provide an opportunity to plan to meet these challenges.
Basic Antitrust Offenses
Antitrust law, at its root, is the law of competition. It is argued that antitrust laws seek to promote fair competition and protect consumers and wronged competitor businesses from anti-competitive business practices. The practices are viewed as being undertaken to undermine the competitive nature of a free market.
Therefore, the antitrust laws target the wrongful acquisition or preservation of monopoly power and concerted restraints of trade (i.e., business practices undertaken by two or more restaurants to improperly stifle or suppress “competition on the merits” in a given market).
Antitrust laws are concerned with wrongs committed against competition in a free market. Therefore, a plaintiff cannot simply allege he or she has been harmed by two separate businesses exerting monopoly power or restraints on free trade. Instead, an antitrust plaintiff must show that the defendant or defendants have undermined competition in a distinct market, and that this injury to competition in general has specifically harmed the plaintiff in particular. This is called a showing of “antitrust harm” and the ensuing “antitrust injury” to the plaintiff. While this sounds like someone having to eat a 57 ounce steak to win a T-Shirt, the vague language of the laws make this meal more like eating a summer salad.
In the cases we have seen being filed against restaurants, the plaintiffs have alleged that restaurants in certain geographic areas have gotten together to add a common surcharge that restrains the free market. The plaintiffs claim this is price fixing under California state law. The legal dispute pointed to a common surcharge added to menu prices at various restaurants; the application of the alleged violation expands to restaurant groups that own a number of restaurants in a small geographic area or even franchise model relationships.
Where Can I Find These Antitrust Laws?
The antitrust laws can be found in various federal statutes, most notably the Sherman Act and the Clayton Act. The federal statutes use vague and general language to prohibit “monopolization” and “restraints of trade,” leaving the interpretation of these terms up to the courts. California has its own statute that adopts the federal prohibition of restraints of trade, but do not prohibit monopolization. The California law is commonly referred to as the Cartwright Act.
The two principal antitrust offenses are “monopolization” and “conspiracy to restrain trade.”
To prove monopolization, a customer would need to prove the “relevant product and geographic market” in which the monopolization is alleged to have occurred. So here the customer would have to establish the proper “definition” of the relevant market, and then demonstrate that (1) the alleged monopoly indeed possesses monopoly power in this market; (2) the monopolist acquired or preserved its monopoly position by employing exclusionary or anti-competitive practices that excluded its rivals from the market; and (3) the claimant suffered proximate losses in direct consequence of the anti-competitive exclusion. A claimant can be a wrongly excluded competitor, a suffering customer, or a class representative of suffering customers (i.e., customers who have been obliged to submit to higher prices or other commercial disadvantages).
It is likewise an offense for two restaurants to conspire together to monopolize a given market or line of commerce, or for a firm to attempt to monopolize a market or line of commerce. Attempted monopolization occurs when one restaurant employs predatory practices by which it aims to destroy rivals and acquire monopoly power, but only if there exists a “dangerous probability” that it will succeed in the endeavor unless it is checked by the antitrust laws.
With the competitive nature of our industry, monopoly cases are very difficult to prove.
Conspiracies to Restrain Trade
The more common claim against restaurants are claims that two or more restaurants conspired to restrain trade. Here, the antitrust laws provide that it is unlawful for two or more restaurants to act in concert to restrain trade in a given line of commerce. Certain kinds of trade restraints are deemed per se violations. To prove a per se violation of Section 1 of the Sherman Act, it is sufficient to prove that the challenged conduct occurred (i.e. an agreed-to-set surcharge, or tip pool, or anti-poaching agreements) and that it is rightly characterized as a recognized per se offense. The per se offenses include price-fixing, bid-rigging, market allocation, and certain kinds of group boycotts. Other types of commercial practices are not deemed per se violations, but appear on their face to be anti-competitive in nature and likely effect that the courts will condemn them as unlawful trade restraints.
What is the Risk of Antitrust Violations?
A restaurant found to be an antitrust offender sued in civil court risks paying treble damages (three times the value of proven harm caused by its offense), as well as attorney’s fees and costs. A restaurant might also be enjoined (i.e., ordered by the court to stop certain business practices.) Antitrust cases are usually very costly to the alleged offender. Restaurants that are tempted to monopolize a market or collude with others in order to gain an insurmountable advantage over customers or rivals should well consider the perils of private antitrust enforcement before embarking on their venture.
In egregious cases, the alleged restaurant owners might be subject to criminal prosecutions. Criminal prosecutions of antitrust law are typically conducted by the Antitrust Division of the United States Department of Justice (DOJ), as well as by state prosecutors. The DOJ prosecutes both criminal and civil claims, and the FTC can prosecute civil and administrative claims. A corporation convicted of a criminal violation can be ordered to pay enormous restitution and fines, and an individual can be ordered to pay enormous restitution and fines as well as serve prison terms up to ten years in a federal prison.
How Do I Defend An Antitrust Case?
Modern day antitrust cases, in many cases, come down to emails and texts. Restaurants should be very careful regarding non-general industry communications sent or received by competitors so they avoid being accused of engaging in restraints on trade. Antitrust defense litigation requires careful consideration of the theory of the case and the elements the plaintiff must prove. Ultimately, antitrust trials boil down to who can tell the better story. Working with legal counsel to ensure the defense story is backed up by the facts is the best recipe for a successful defense. Just like presenting a meal to a customer, plating the facts in an easily digestible layout will lead to better results. When considering changes to your restaurant, you now need to add to the menu of risks: the Federal and State Antitrust laws.