The antitrust maze

How far can antitrust authorities

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go in regulating the take-no-prisoners industry of high technology? That key question is at the heart of the Justice Department's latest investigation into Microsoft's business practices. CNET'S NEWS.COM breaks down the legalese to give you a first-hand look at what antitrust really means.

Q: Why are antitrust laws important?
A: Antitrust laws encourage competition by preventing monopolies. True competition benefits consumers by ensuring lower prices and new and better products. When competitors agree to fix prices, rig bids, or artificially divide the market, consumers lose. The prices that result when competitors agree in these ways are artificially high.

Q: What are antitrust laws and what do they prohibit?
A: Two major federal antitrust laws are designed to protect competition. They are the Sherman Antitrust Act and the Clayton Act, and the Federal Trade Commission Act.

The Sherman Antitrust Act, passed in 1890, outlaws all contracts, combinations, and conspiracies that unreasonably restrain interstate trade. In other words, it prohibits actions such as price fixing, bid rigging,

For example: If Microsoft achieves a monopoly simply by being the most efficient company with the best products, it would not be breaking antitrust laws. But if Microsoft is using its strong position in the operating system market to give it "unwarranted advantage" in the online service or video streaming market, Microsoft would be breaking the law.

and monopolization or the attempt to create a monopoly. Violations of the Sherman Act can incur either criminal or civil penalties.

Price rigging and bid rigging are fairly straightforward, but the section of the law that prohibits monopolies is a gray area. The courts have ruled that a monopoly cannot simply be defined as a company that dominates the market. What is important is not whether you have a monopoly but how the monopoly was achieved. Companies are forbidden from leveraging their strengths in one market to dominate another.

The Clayton Act,

For example: The Justice Department could decide that Microsoft's investment in Apple Computer qualifies as a "joint venture" and therefore limits other companies in the operating systems or browser markets. (Apple has said it will use Microsoft's Internet Explorer as the preferred browser on the Mac OS.)

signed in 1914 (and amended in 1950 and 1978) states that mergers or joint ventures among firms shall be prohibited where the effects will create a monopoly or lessen competition. Under the Act, government economic analysis must show that the merger is likely to raise prices or limit competition. The Clayton Act is a civil statute, which means that it carries no criminal penalties.

Q: What is the Hart-Scott-Rodino Act I keep hearing about?

For example: The explosion of corporate buyouts in recent years and the low $15 million threshold has introduced Hart-Scott-Rodino into the common vocabulary of American business. Just last month, the Justice Department approved the $24 billion merger of British Telecom and MCI. In April, it approved the Bell Atlantic-Nynex merger. All companies filed with the Justice Department under Hart-Scott Rodino.

A: Signed in 1976, the Hart-Scott-Rodino Act is a federal law requiring that companies involved in potentially significant transactions notify the government before mergers and acquisitions take place. The law requires that participants in mergers worth $15 million or more wait a period of time before closing the deals to give the government an opportunity to decide whether they give one company too much market power.

Q: Who investigates federal antitrust cases?
A: Either the Justice Department or the Federal Trade Commission investigates antitrust cases at the federal level. Most states also have antitrust laws that parallel federal antitrust regulations. The state laws, enforced by the local attorney general, generally apply to violations that occur within one state, but states can investigate companies that are also under federal scrutiny.

Q: Can individuals sue for antitrust?
A: Private parties injured by an antitrust violation can sue in federal court for three times their actual damages plus court costs and attorneys' fees. State attorneys general may bring civil suits under the Clayton Act on behalf of injured consumers in their states, and groups of consumers often bring suits on their own. 

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