Antitrust Compliance January 2015 Robert A. McTamaney

Antitrust Compliance

January 2015

Robert A. McTamaney

C , L & MA R T E R E D Y A R D IL B U R Nw w w.clm .com P artners fo r Your B usin ess ®

General Antitrust Principles

• Competition Benefits Customers• Greater Scrutiny of Dealings With

Competitors Than With Suppliers or Customers

• “Market Power” = Monopoly Power = Additional Burdens

• Actions Supported by Legitimate, Pro-competitive, Non-coercive Business Purposes Generally Fine


Basic Rules for Antitrust Compliance

• Competitors may not agree with competitors– On prices, or on terms of sale.– To allocate customers, territories, or markets.– Not to compete, such as bid-rigging– On prices for goods or services they are purchasing– To boycott suppliers/customers for anti-competitive

ends– On levels of production or service.

• Companies may not use dominant market positions to monopolize a market, control prices, or exclude competitors. Generally, Market Power = Monopoly.


Sherman Act - Section 1

• Forbids Contracts, Combinations or Conspiracies in Restraint of Trade.

• Violation Is a Felony.• Unilateral Action = Legal• Same Concerted Action = Illegal


Per Se Antitrust Violations

• Price Agreements With Competitors

• Market or Customer Allocation Agreements

• Agreements to Limit Service or Boycott Customers or Suppliers

• Agreements on Terms and Conditions of Sale or Purchase

• Resale Price Maintenance Now Rule of Reason under Federal law, still per se in some states


Law Regarding Conspiracies• Agreement Between Two or More Persons

to Accomplish an Unlawful Objective or a Lawful Objective By Unlawful Means

• Agreement May Be Inferred From Conduct• Things You Can Do Alone You Cannot Do

With Others• Liable for Acts of Co-conspirators • Withdrawal Requires Affirmative Act –

Contact Authorities – Not Just Stop


“Rule Of Reason” Antitrust Issues

• Balance Restrictions vs. Benefits• Bona Fide Joint Ventures• Sharing Information With Competitors• Agreements With Customers or Distributors to

Refuse to Deal With Others• Tying – Conditioning Sale of One Product or

Service on Buyer’s Purchase of Another• Exclusive Dealing; Resale Price Maintenance


Sherman Act - Section 2

Forbids Monopolizing or Conspiring or Attempting to Monopolize.


Section 2 Violations

• Use of Unfair Means to Acquire or Maintain Monopoly Power

• Use of Essential Facilities to Monopolize• Monopoly Leveraging – Use of Market Power

in One Market to Create a Competitive Advantage in Another Market

• Predatory Pricing – Pricing Below Cost to Drive Out Competitors


Clayton Act and FTC Act

• Section 4 – Private Action; Treble Damages, Attorneys Fees and Costs

• Section 5 – Guilty in DOJ Suit Is Prima Facie Evidence of Liability in Civil Suit

• Section 7 – Prohibits Mergers and Acquisitions Likely to Lessen Competition. HSR Pre-Merger Notification

• FTC Act Section 5 – “Unfair Methods of Competition”


Market Definition

• Product Market – What Other Products Will Consumers Substitute If Defendant’s Product Becomes Too Expensive?

• Geographic Market – Where Can Consumers Go to Buy Product or Service From Someone Other Than Defendant If Defendant’s Price Is Too High?

• “Functional Interchangeability”


Robinson-Patman Act

• Competing Buyers Price Discrimination• Purchase of Commodities Not Services• Goods of “Like Grade and Quality”• Plaintiff Must Show Actual Harm• Sale in Interstate Commerce• “Primary Line” injures competitors of the

Manufacturer• “Secondary Line” injures a disfavored Buyer not

receiving best price given to favored Buyer• Cost Defense and Meeting Competition Defense


International Transactions

• U.S. Antitrust Laws Reach Activities Abroad Which Have a “Substantial and Reasonably Foreseeable Impact” in U.S.

• Non-residents and Non-citizens of U.S. Can Be Subject to U.S. Antitrust Liabilities

• A Proposed Arrangement May Also Be Impacted by the Competition Laws of the EU or Another Country


Trade Associations

• Joint Study and Action on Industry Issues; Joint Advocacy

• Benchmarking and Cooperation• Self-Regulation and Codes of Conduct• Adopt and Enforce Technical Standards• Social Camaraderie


Association Problem Areas

• Facilitates Competitor Interaction• Raises Issues of Concerted Activity• Standards Can Be Anti-Competitive• Codes of Conduct and Coercion• Membership Must Be Fairly Open• Mere Membership Not Agreement, But

Members and Officers Exposed


Association Problem Areas

• Informal Discussions Between Competitors Who Gather Together at Meetings

• Anticompetitive Membership Restrictions• Anticompetitive Programs Involving

Certification of Products (Generally For Safety or Quality) or Setting of Standards

• Filing of Sham Lawsuits


Information Exchanges

• Benchmarking, Safety, Quality• Concerted Legislative Lobbying• Price Exchange is Most Sensitive• Use Third Party Collector and Share

Aggregate Data Not Most Current• Involve Counsel at Each Step, and

Written Support for the Process


Association Membership

• Must have “reasonable rules in order to function effectively.” Northwest Wholesale Stationers (1985).

• The more important the membership, the more sensitive any exclusion (boycott) of a logical member.

• Excluded Member Must Show Damages.


Membership Criteria

• Participant in a Particular Industry• At a Particular Level or Levels• Or in Particular Geographic Areas• Fees Can Vary if Logical Criteria• Have Objective Rules, Uniformly

Applied and Procedurally Fair.• Different Membership Classes and

Rights Can Be Solution.


Standards

• Technical, Quality, Safety, Certifications• Sherman Act Section 1; FTC Act Section

5; State Laws, Tortious Interference• Pro-Competitive – Allied Tube (1988)• Usually Rule of Reason.• Horizontal/Vertical Refusals to Deal


Standards Issues

• Usually Requires Confidential Information to Promulgate

• Cost of Compliance is a Major Factor, but Prices and Margins are Sensitive

• Quality and Safety Usual to Justify• Is the Goal Legitimate• Is the Standard Reasonably Related• Balance the Burden vs. the Benefit


How to Adopt Standards

• Use an Expert Organization• Involve the Government• Open the Process to All Affected• “Due Process” Approach• Mandatory or Voluntary; Who Enforces• Or Mandatory in Fact


Standards Cases

• ASME v. Hydrolevel – Misuse of Pressure Vessel Standard by Competitor

• Plant Oil (2011) Cases dismissed because compliance not necessary to compete.

• Healthcare cases excluding unqualified doctors.

• Sports League Cases assuring uniformity.


Noerr-Pennington and Lobbying

• Wide antitrust immunity for competitors and associations to seek legislation

• Noerr (1961) and Pennington (1965)• Even if Competition is restricted or

eliminated or a monopoly created• First Amendment Trumps Sherman Act• But Does Not Protect Fraud or Sham

Litigation. Sykes (2010)


Noerr-Pennington and Associations

• Protects Association Support of Legislation

• Testimony; Political Action Arms• Litigation Challenging Regulations • All Protected• But Not Shams or False Testimony or

Illicit Conspiracies. But Bobrick Case.


Noerr-Pennington Exceptions

• Superior Court Trial Lawyers (1990). Noerr does not protect concerted boycott to secure higher rates.

• And does not protect private action aimed at a government, vs. to secure new laws. Carpet Group (2003).


State Action Doctrine

• Parker v. Brown (1943)• California permitted raising growers to

withhold raisins to raise prices. Immune.• Health Care Equalization Committee

(1988). Iowa directed organization to refuse to deal with uncertified chiropractors. Immune.

• Phoebe Putney/Dintelman Cases (2011)


Non-Member Access

• Not Required Unless Access is Only Reasonable Competitive Alternative.

• Fees and Charges Can Be Fair; Not Required to Subsidize Non-Members, Particularly if They Could Have Joined.

• Reasonable Advance Access to Results for Members.


Codes of Ethics

• Extremely Important to Maintain Ethics and Reputation of the Industry.

• But Take Care to Avoid Backdoor Boycott, or Subtle Price Agreement, or Concerted Sales Practices.

• Especially Sensitive if Price or Competitive Practices are Dealt With.

• Legitimate, Objective, Uniform, Fair.


Specific Practices

• Avoid Exchange of Price Information, Publication of Members’ Current Prices, and Suggested Retail Prices

• Do Not Ban Price Cutters, Price Adjusting, or the Development or Sale of Legitimate New Services

• Do Not Restrict Members’ Services, Allocate Customers or Territories, or Engage in Boycotts or Refusals to Deal


Trade Association Cases

• National Society of Professional Engineers (1978). Code of Conduct Restricted Bidding.

• ABA (1996) Competitive Law Schools.• National Association of Realtors (2006) Brokers

Barred from On-Line Sales Practices.• National Association of Music Merchants

(2009) Wrongful Price Information Exchange.• American Needle v. NFL (2010) Rule of Reason

Applied to Logo Licensing.


Gray Areas

• Standardization• Certification and Seals of Approval• Standards of Industry-wide Contracts

and Warranties• Codes of Conduct• Trade Show Access• “Mere Membership” is Not Agreement.


Joint Research & Development

• National Cooperative Research and Production Act of 1993

• Standards Development Organization Advancement Act of 2004

• Applies Rule of Reason to JVs and standards development organizations; permits attorneys fees.

• Actual vs. Treble Damages if Notification is filed with DOJ and FTC.


Joint Ventures

• Not Per Se Illegal If Joint Venture Involves a Bona Fide Integration of Resources

• Venture Then Becomes One Actor• Market Analysis Used to Measure

Competitive Effects of Proposed Venture• Creation of a New Product or Service Is a

Pro-competitive Justification• Elimination of Competition Between Joint

Venture Partners Is the Typical Concern


Mergers

• Hart Scott Rodino -- 30 Days• FTC or DOJ – “Second Request”• “Item 4(c) and 4(d)” Documents• No Bar to Private Lawsuits


Sherman Act Violations Are Felonies

• Sherman Act Fines up to $100 Million for Corporations and $1 million for Individuals; Prison Sentence up to 10 Years

• U.S. Sentencing Guidelines Base Fine Is 20% of Volume of Affected Commerce, Increased or Decreased by “Culpability Score”

• Alternative Fines Under Comprehensive Crime Control and Criminal Fines Improvement Acts up to 2X Gain or Loss

• EU – fines up to 10% of worldwide turnover


Civil Actions

• Treble Damages• Plus Attorneys Fees• Tremendous Costs• And Diversion of Attention


Illustrative U.S. Cases

• HeereMac (Marine Construction Industry) $49 Million

• Archer Daniels Midland (Preservatives) $100 Million

• Hoffman-LaRoche (Vitamins) $500 Million

• Pfizer (Additives) $20 Million• BASF (Sweeteners) $225 Million• International Cartels Were

Involved in 90% of Recent Cases


DOJ Amnesty Program

• Stop and Self-Report Before Investigation• Report Wrongdoing Candidly and Completely• Fully Cooperate With DOJ• Make Restitution Where Possible• No Instigation or Coercion of Illegal Conduct • All Directors, Officers, and Employees Who Come

Forward, Admit and Cooperate, Also Amnesty• Sometimes a Race to the Courthouse• Dodd Frank Whistleblower Program


Practical Considerations• Care During Trade Association Meetings and

Other Meetings With Competitors• All Agreements Evaluated for Antitrust Risk• Avoid Coercive Conduct• Proper Documentation of Price Changes• Care in Creating, Preserving, and Discarding

Written Communications, Including E-mail• Think Before You Sue – Antitrust

Counterclaims• Get Legal Advice


Guide to Document Preparation

• What is a document?• Includes draft documents,

letters, emails, attendance notes, meeting transcripts and diary entries

• Rules for document creation• Avoid Sensational or Suggestive

Language• Write positively• Focus on facts• Know when to get advice


Words to Avoid

• Do Not Copy• Destroy After

Reading• Annihilate• Off-the-record• Dominate• Out Of The Market• Leverage

• Hurt• Control• Eradicate• Preempt• Secret Agreement• Kill• Break Down


U.S. Trade Sanctions

• Typically Imposed by President Under Emergency Authority and with Maximum Possible Scope to Cover All Trade by Any U.S. Person with the Target Nation.

• “U.S Person” Includes All Persons in the U.S., All U.S. Citizens and Permanent Resident Aliens, Wherever Located, and All Entities Organized Under the Laws of the U.S.

• Criminal Penalties of up to 20 Years in Prison, $1,000,000 in Corporate Fines and $250,000 (or more) in Individual Fines. Civil Penalties of up to $275,000 Per Violation.



• Afghanistan• Angola• Burma• Cuba*• Iran*• Iraq*

• Liberia• Libya*• North Korea*• Sierra Leone• Sudan*

* Comprehensive Trade embargos currently in place against these nations and others

Target Nations Include



Prohibited Activities• Import of goods or services to the U.S.

originating in a target nation.• Export of goods, technology or services

by a U.S. person to a target nation. This includes transactions through a third country.

• Financial transactions and investment.• Facilitation or approval by a U.S. person

of a transaction between a foreign person and a target nation.


U.S. Anti-Boycott Legislation• Prohibits U.S. Companies and Their Foreign

Affiliates From Participating in Foreign-led Boycotts Against Countries Which Are (A) Friendly to the U.S. and (B) Are Not Themselves Subject to U.S.-Led Boycotts.

• In General, No Prohibition on Complying With Restrictions That a Boycotting Country Places on the Goods It Imports Into Its Own Country, or on the Export of Its Own Goods.

• The Penalty for Each Violation May Include 5 years’ imprisonment, and a Fine up to $50,000 or 5X the Value of the Exports Involved, Whichever Is Greater.


Export Controls

• International Traffic in Arms Regulation (ITAR) – military uses.

• Export Administration Regulations (EAR) -- goods and technology with both civilian and military uses.

• OFAC enforces sanctions against foreign countries and nationals, terrorists and international narcotics traffickers.


Foreign Corrupt Practices Act

• FCPA Prohibits Corrupt Payments to Foreign Government Officials to Obtain or Keep Their Government’s Business.

• Massive Fines and Substantial Prison Sentences in Recent Cases.

• An Employer May Not Pay an Employee’s Fines.


Questions

Robert A. McTamaney

(212) 238-8711

[email protected]