Each alleged violation of Section 1 of the Sherman Act requires proof of an agreement to unreasonably restrain interstate commerce or trade. There are two well-recognized types of agreements between market participants to unreasonably restrain trade: horizontal and vertical agreements.
- Horizontal agreements. The classic example of a horizontal agreement is any arrangement or understanding between or among direct competitors to fix or maintain prices, allocate markets, or rig bids. Because these agreements between direct competitors lack any justifiable procompetitive benefit, they are deemed per se illegal under the Sherman Act, meaning evidence establishing an agreement among competitors to restrain trade is enough to impose liability upon all participants in the conspiracy without analysis of actual market effects, if any.
- Vertical agreements. Conspiracies with vertical agreements involve entities at different levels of the market structure, usually at different levels of a supply chain (e.g., manufacturer and buyer). Not all vertical agreements are deemed illegal, and many can be justified by procompetitive benefits. Courts find vertical agreements to be unlawful only after an analysis of market effects to determine whether the restraint of trade is unreasonable, which is known as the rule-of-reason analysis.
Counsel and companies should also be aware of hub-and-spoke conspiracies, which include both vertical and horizontal components. These types of restraints can also be subject to per se scrutiny, particularly where a plaintiff can establish the existence of a rim.1 A hub-and-spoke conspiracy has three parts: the hub, the spokes, and a rim. Essentially, it is a series of separate vertical agreements between a central actor, who is at one level of the supply chain (the hub), and a number of actors on a different level of the supply chain (the spokes); and a horizontal agreement among the spokes to the same scheme that each spoke reached individually with the hub (the rim).
Absent direct evidence of the "agreements" in a hub-and-spoke scenario, common indirect evidence used by plaintiffs and government agencies to substantiate allegations of a hub-and-spoke conspiracy include communications between the conspirators. Courts often also look at evidence that the defendants' actions were adverse to their independent business interests, and that the parallel conduct was conditioned on similar conduct by other competitors. These factors are explored...
