As businesses are considering responding to Trump's tariffs, including adjustments to prices and supply chains, antitrust enforcers are scrutinizing antitrust acts and raising concerns that certain strategies may violate antitrust laws, including joint action in violation of Section 1 of the Antitrust Act, and violating antitrust laws in violation of Section 2 of the Sherman Act. Robinson Patman method. This article provides a framework to address these competitive concerns and continue to comply while building contracts to manage tariff-driven volatility.
Why antitrust compliance is important
Antimonopoly laws are fundamental to maintaining competitive markets across the US economy. These laws, primarily enacted by the Department of Justice and the antitrust division of the Federal Trade Commission, prohibit joint actions, irrational trade suppression, monopoly actions, and price discrimination when those actions distort market outcomes and harm competition. Violations can result in sudden civil and criminal damages and penalties in hundreds of millions or billions of dollars, exposing employees to personal financial liability and sentences.
Navigate customer interactions with competitors
When assessing potential joint actions under Sherman Act, the court considers one of two types of scrutiny. First, called That itself Illegality means that this act is very likely to have an anti-competitive effect, and therefore is inherently illegal and there is no justification for a competitive business for the act. Related to this situation, That itself Illegality usually applies to horizontal contracts, arrangements between competitors. This includes actions such as price locking, power limiting, market and customer sector. The second, called the Rule of Reason Analysis, is a balance test in which the anti-competitive effect of its behavior is weighed against its competitive justification. Rules of reason are used to evaluate specific horizontal agreements, such as joint ventures and other forms of competitor collaboration. Most vertical contracts, contracts between parties at various levels of the supply chain are also analyzed under the rules of reason.
Price or sales strategies can elicit antitrust scrutiny, even those that constitute independent conduct. For example, certain forms of price discrimination are prohibited by the Robinson-Patman Act. The Robinson-Patman Act focuses primarily on preventing sellers from charging different prices at different prices, but similarly located, if those buyers compete with each other and sales are close to time, then the buyers of the same item. Similarly, below cost or predatory pricing can be illegal. This occurs when sellers (usually important market forces) temporarily lower prices with the goal of forcing fewer competitors out of the market, thus allowing stronger sellers to go further higher afterwards.
Both the DOJ and the FTC have warned businesses to be aware of pricing practices in response to Trump's tariffs. FTC Chair Andrew Ferguson warned competitors discussing how to explain pricing tariffs, saying, “These necessary tariffs should not be interpreted as green light for price fixing or other illegal actions.” Assistant Principal Roger Alford said: “It's antitrust response, the risk of anti-competitive action, and response to high tariffs, which is dynamic pricing behavior. [e.g., price discrimination and predatory pricing] of the rest of the competitors. ”
Trump's tariffs should avoid opportunities for businesses, particularly those with important market forces, to engage in behaviors like competitor price discrimination, predatory pricing, and illegal ties. Similarly, businesses should avoid discussing Trump's tariffs with competitors in the context of their pricing strategies, or take the risk of costly Sherman law violations.
Strategic Contracts
Companies need to closely monitor their interactions with competitors and customers. Strategically drafted, well-built contracts are one of the most effective tools to alleviate tariff-related costs and supply chain disruptions, but they can incorrectly limit trade, limit antitrust laws, and cause antitrust laws. To this end, the following considerations are useful guides for strategic contracts during the volatility of customs duties.
Law change and coercion
Importers may attempt to define new or increased tariffs as “changes to law” that lead to contract relief. In contrast, exporters may aim to exclude customs duties from the definition to avoid such obligations. In general, increased tariff-related costs are not merely expensive and not eligible as force, which applies only to events that make performance impossible. To fill this gap, businesses can either modify the enforcement clause or add a struggle clause to cover customs duties. Such provisions are not standard in international contracts and courts rarely excuse customs duties. Their validity depends on the contract language.
Exclusiveness
A contract between the exclusive clause and minimum order requirements can increase customs exposure if the supplier's product obligations increase. Exclusive transactions that block competitors from key inputs can cause antitrust scrutiny, especially when limiting market access. When assessing potential antitrust concerns, regulators consider factors such as the length of the exclusivity arrangement and the legitimacy of the supply of the issue.
Cost and risk allocation and price adjustments
The other two important areas are cost and risk allocation and price adjustments. In an international commercial contract, the rules of international commercial terms define the allocation of liability between the buyer and the seller, including the parties responsible for the costs of customs duties. Importers are usually responsible for all duties, taxes and import fees in the country of their destination under most Incoterms, except for Incoterm. Therefore, strategic choices of Incoterms, combined with built-in pricing formulas related to tariff changes, can shift risk and maintain supply relationships.
Take home
Overall, strategic contracts can protect margins amid tariff uncertainty and stabilize the supply chain. However, there is no contract to completely isolate the company from liability for illegal activities, and pricing strategies that take away competitors or unfairly discriminate between competing buyers can violate antitrust laws even when distorting market competition regardless of tariff pressure. When preparing contracts that could involve antitrust laws, companies must involve competent antitrust advisors in both negotiating and drafting the contract.
