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COOPERATIVE ENDEAVORS

Nowhere is the "tilt" in antitrust enforcement more evident than in respect to cooperative activity between and among small competitors. One firm with a market share of 30 to 60 percent can establish prices for its products, allocate production, share inventory and reap the advantages of large-scale research and development. Yet if two independent firms, each having 5 percent or less of the market, attempt by agreement to accomplish the same purposes, the antitrust agencies do not hesitate to bring legal proceedings on the basis of per se violation theory.

Congress has provided that the Attorney General may permit the formation of small business groups so as to enable them to compete with dominant firms more effectively, and without the threat of antitrust liability. The Small Business Act of 1958, as amended in 1967, ostensibly permits the cooperation of small business firms for the purposes of obtaining raw materials, inventory, supplies, research and development, and equipment, so as to permit more effective competition with a large-scale firm by a smaller-scale business.

RESOLVED

It is recommended that Congress should expand opportunities for small firms to participate in cooperative endeavors to enable them to compete with giant companies, thereby countering the accelerating trend toward concentration.

MERGER POLICY

The antitrust enforcement agencies see no way to halt the merger trend among giant companies except by new legislation. In their opinion neither the Clayton Act nor the Celler-Kefauver Act are effective.

In the period 1951-1977 large industrial mergers totalled 2332, with only 8.1 percent of these being challenged. The Justice Department says, “Under the present law, we have no basis even to open a preliminary investigation."

Although small business is deeply concerned about economic concentration and monopoly power, there is reasonable cause for alarm that in stopping mergers between large companies, small companies (those with less than 20 percent market share) will be targeted for acquisition by the larger companies. At the same time there must be recognition that many smaller companies would be most reluctant to lose any right to dispose of their business by a tax free

stock exchange with a larger company.

Failing companies also require special consideration because of the employees involved and potential damage to the community. No provision is made for this in the affirmative defenses and this is a critical omission.

Much of the antitrust problem relating to failing companies rests with the antitrust agencies themselves. Merger and acquisition policy has been applied most harshly in reference to small business concerns experiencing difficulties. Although the courts have recognized the failing company defense, the antitrust authorities have been most inhospitable thereto, narrowing the scope of the exemption so as to make it useless to all but a wholly bankrupt business firm. At that time, of course, the small business firm finds itself unable to sell or liquidate on anything resembling advantageous terms.

RESOLVED

1. It is clearly the intent of merger and acquisition
policy to inhibit monopoly growth of the large. How-
ever, present application of antimerger policy is most
punitive to smaller companies. Application of these
policies with respect to the "failing company" needs
re-evaluation.

2. Furthermore, in light of the increasing trend
towards concentration through what is known as
"conglomerate mergers" and the apparent inability
of present antitrust laws to deal adequately with this
type of activity, the Small Business Legislative Coun-
cil endorses the concept behind legislation proposed
in the 96th Congress which would have restricted
mergers among corporations of certain sizes. How-
ever, prohibitions against acquisitions of companies
with 20 percent or more of sales in any significant
market should apply only to (a) acquired companies
with larger market shares and (b) only where the ac-
quiring company initiates the attempted merger.

EXPEDITING SMALL BUSINESS COURT ACCESS FOR ANTITRUST LITIGATION

Because of various expense impediments to small business plaintiffs, and incentives in the present system encouraging defendant delay, no effective way exists for small business to assume an active role in the enforcement of antitrust statutes, even though it may now have a nominal right to go to court.

Outlined here are proposals described as the Small Business Court Access Act, advocated by the Small Business Legislative Council, to streamline and make less expensive the ground rules employed in small business suits.

1. The removal of several impediments to collective, or class small business relief is essential if small business is to have effective, privately initiated antitrust remedies when price fixing, price discrimination, or monopoly power is found. Government enforcement of some antitrust laws of great importance to small business has been virtually at a standstill.

2. Present requirements determining when small business can join together to sue as a class now encourage a proliferation of unnecessary and unrelated factfinding. All this rewards the litigant with the superior resources.

The Small Business Court Access Act simplifies greatly the standards governing the possibility of collective action so the court can identify quickly and directly those actions appropriate for collective relief. Such reform would permit expeditious treatment of the merits of small business actions.

3. The Small Business Court Access Act mandates that there be an early evaluation of the merits of a small business class damage action under the antitrust laws and other federal statutes. Small business can use this tentative judicial evaluation to assess the wisdom of pursuing the action and committing further dollars and time to it. This requirement will also encourage the judge to take early, firm control of the litigation. Discouraged will be open-ended expensive litigation battles to determine facts only of slight importance, and other forms of procedural delays. Such strategies have been conducted by some defendants who desire to exploit their superior litigation

resources.

4. In those collective actions involving a range of small and large injuries to small business, the Small Business Court Access Act would also make available

government funds to pay the expenses of private attorneys representing small businesses and others. The funds would not come from the general treasury, but from unclaimed portions of prior class action recoveries. Use of these funds to pay the costs of private attorneys representing small businesses and others would be a significant step forward. It would help to alleviate the well-known financial pressures on the small business attorney, who, in many cases, will be advancing expenses. Such pressures encourage an attrition strategy by the other side and can force settlements. These funds will also help offset government enforcement inertia in certain areas.

5. The Small Business Court Access Act would also make available up to $10,000 to a small business which detects and advances the prosecution of an antitrust violation such as price fixing or price discrimination. This incentive would encourage detection where the actual injury to a particular small business is slight, but where the aggregate injury inflicted on the large numbers of businesses is large.

6. A basic theme prompting the class action portion of the Small Business Court Access Act is the need to break large, complex antitrust actions into manageable phases. If judicial officers were given the tools to follow an orderly litigation progression (including the ability to conduct early inquiries into the merits before extensive expenses are incurred by small business classes), small businesses alleging important, complex, innovative theories under the antitrust laws would have a much greater chance of achieving a settlement or trial determination within a reasonable period. Further it is much less likely that small business class actions would be dismissed on the grounds that they are unmanageable. Such dismissals are not entered without analysis of the underlying merits of the small business claims.

7. When involved in antitrust class damage actions small businesses are on the palintiff side 80 percent of the time. Small businesses who bring legitimate actions may find them disfavored by courts influenced by the propensity of some attorneys to bring frivolous cases solely to secure fees. Not only are legitimate small business plaintiffs indirectly harmed, but defendants are put through unnecessary time and expense, often causing these defendants to be less reasonable in the context of a legitimate suit.

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The preliminary hearing, mandated in the Small Business Court Access Act, addresses this problem by allowing the court to put aside extensive procedural inquiry and first see if the lawsuit has any basis. Not only would this eliminate nuisance suits that may indirectly harm small business, but it would give small business an early look at the possible judicial success of its suit, an insight which would be invaluable in determining the resources to be expended.

8. Some defendants, when confronted by serious small business class actions, will attempt to use their superior litigation resources to employ motion practice and factfinding procedures to delay, or to reduce the size of the class. As a stratagem to reduce the class, the defendant may propound questions to all small business class members. Or lengthy interviews may be conducted with them. Members of the small business class can be barred from recovery if they do not respond or participate in these maneuvers. Often very little of the material developed is ever used in the litigation. Such strategies also force counsel for the small business class to expend much unproductive time.

The Small Business Court Access Act would limit early factfinding on the threshold issues determining whether collective small business relief is appropriate. In addition, there is a prohibition on factfinding aimed against class members, unless court permission is obtained after a showing that the information is necessary for the advancement of the action and cannot be obtained without undue hardship by other means. Failure of the small business to respond to such discovery when ordered will not bar it from recovery in a successful action.

9. The Small Business Court Access Act would also regulate the fees an attorney could charge to the recovery of small businesses and other class members.

10. Presently, when one or several small businesses bring an action for redress under antitrust or other statutes, they will receive, if victorious, compensa

tion only for the injury inflicted upon them at the time the law was violated. Typically they will not receive any interest on the value of this injury to compensate for the time required to secure redress.

The Small Business Court Access Act would ensure that small businesses are compensated not only for their injury, but for the period they must bear the burden of this injury. This is needed not only to compensate more fully small businesses, but also to remove an incentive for defendant delay. If defendants are not required to pay interest, then they have every incentive to delay settlement or trial in order to use the funds likely to be paid as a judgment at the prevailing small business interest rate during the pendency of the action.

11. Often a government antitrust judgment will suggest that small businesses also have a right to redress for the injury inflicted by the violation. However, the government normally will not seek as part of its judgment compensation for such injury. It will rely on the initiative of private attorneys, who will use the government judgment to secure compensation for the businesses. However, the federal antitrust law determining the weight given in the subsequent proceeding to the prior government judgment has been construed by the courts in a restrictive manner. Some courts find that the defendant is entitled to assert all his defenses notwithstanding the rejection of such defenses in the prior government action. Small business is required to relitigate at great expense all these issues.

The Small Business Court Access Act would accord the government proceeding full force in these subsequent suits. To the extent particular issues were litigated, or could have been litigated, the result would be binding upon the defendant. This position is supported by the Antitrust Division and the National Commission for the Review of the Antitrust Laws and Procedures. Its implementation would materially assist in expediting individual and class antitrust litigation on behalf of small business and reduce its cost by limiting the need for wasteful relitigation.

RESOLVED

The present judicial system has operated to the detriment of small business. Small business cannot afford to pay to secure its rights. Procedural reform is essential. Comprehensive solutions are urgently needed if there is to be a vigorous private enforcement of antitrust laws. When small business' entitlement to a

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free and competitive market has been denied, it can rely on government action only to a small degree. Small business has always relied on private initiative. The Small Business Court Access Act would allow small business to do so in this area and to pursue its remedy under law, rather than suffer its antitrust wrongs in silence.

As steps to enable small business to secure quick, inexpensive, and efficient redress from antitrust violations, the Small Business Legislative Council supports, in principle, (a) a revision of court procedures to allow small businesses to join together in collective actions to secure redress for injury suffered by the same illegal conduct, and in particular supports legislation to make this redress less complex, less costly and more efficient, and financial assistance to pursue such remedies; (b) legislation designed to allow greated small business reliance, as a matter of proof, on prior government judgments when small business brings subsequent suits based on the same conduct found to be illegal; and (c) legislation designed to reduce the financial incentive which larger business has under the existing Tax Code to delay the day of damage judgment when sued by small business since such costs incurred in pursuing a strategy of delay are deductible.

Small Business Legislative Council similarly supports allowing small businesses to join together in collective action in the matter of court review of rulemaking by the Federal Trade Commission and specifically urges that the complete record of rule-making hearings, in such form as acceptable to a court, be made available at government expense to the plaintiffs in such collective actions.

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