Antitrust regulations and trade shows—: Can dealers and exhibitors be excluded)

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  • Anftrust R.eg,aladons and Trade Shows--- Can Dealers and Exhibitors

    Be Excluded?

    byJe'Anna Abbott and Jcse~ La~za

    Trade-show promoters may face antitrust claims if they exclude some

    prospective exhibitors as a way to enhance the competitive position of

    other exhibitors.

    T rade shows historically have been used by trade and professional associations to promote association members' products and services. Over the years such opportunities have been increasingly available and popular. During the last two decades the number of trade shows spon- sored by private promoters has also grown, along with shows' potential profitability.

    Trade shows present special prob- lems when viewed in light of anti- trust regulation. As a particular trade show becomes more and more suc- cessful, increasing numbers of re-

    Je'Anna Abbott, _I.D., is an assistant professor at the Conrad N. Hilton College of Hotel and Restaurant Management, at the University of Houston.Joseph Lanza, J.D., is an attorney with Richard Haynes & Associates, P.C., in Houston.

    1998, Comelt University

    12 EfiRNELL HOTEL AND RESTAURANT ADMINISTRATION QUARTERLY

  • lated businesses may perceive the need to participate in that show just to remain competitive in the rel- evant market. Yet show promoters, whether trade associations or indi- vidual promotion companies, must somehow allocate usually limited trade-show space and resources. Indeed, facility capacity and limited resources may mean that not every business can participate as an ex- hibitor. Trade shows that use some method to screen exhibitors or as- sign prime exhibition space may be challenged in court by those exhibi- tors that are left out of the show or given undesirable exhibition space.

    It's also the case that some asso- ciations have an underlying agenda that goes hand-in-hand with their trade shows, namely, to benefit asso- ciation members in some manner. When writing rules that will de- scribe who can participate in a trade show, however, trade associations and individual show promoters must be aware of the risk of crossing over the line from legitimate limitations to anticompetitive conduct.

    Right to re fuse to dea l . As a general rule, a company has the unfettered right to deal with whom it pleases and to refuse to deal with whom it pleases, so long as the de- termination is made unilaterally and without regard to such characteris- tics as race and national origin. 1 That right, however, may be out- weighed by antitrust law in certain circumstances.

    This article examines the types of restrictions that can create risk for any trade-show promoter. It focuses first on violations of section one of the Sherman Act (restraint of trade), with particular emphasis on trade shows sponsored by associations, as history proves those to be most vulnerable to antitrust challenges. The article then turns to violations

    See: Associated Press v. United States, 326 U.S. 1, 14-14 (1945); and United States v. Colgate & Co., 250 U.S. 300, 307 (1919).

    of section two of the antitrust act (monopolization) and what that section means to promotion compa- nies. Finally, we look at antitrust law specifically with the individual (nonassociation) promoter in mind. Each section provides guidelines for drafting appropriate restriction or exclusion criteria based on case law.

    Sherman Antitrust Act

    The Sherman Act proscribes certain kinds of business conduct. Engaging in that conduct is a felony under federal law. The specific conduct forbidden is defined and described in sections one and two of the Sherman Act. Federal statutes give certain classes of private individuals or entities the right to sue for viola- tions of the Sherman Act and to collect monetary damages if they prevail.

    Section One: Restraining Trade Section one of the Sherman Act prohibits any contract, conspiracy, or combination to restrain trade. A violation of section one requires proof of three elements: (1) a con- tract, conspiracy, or combination, 2 (2) a resultant unreasonable restraint of trade in the relevant market, and (3) antitrust injury. 3

    Having established that two or more entities did, in fact, enter into some agreement to restrain trade, the courts employ two standards to determine whether that restraint of trade is unreasonable: (1) the per se rule and (2) the "rule of reason." The nature of the restraint deter- mines which standard a court will apply. For example, a price-fixing

    2 A "contract, conspiracy, or combinat ion" means any agreement by two or more entities, where the entities may be an individual, a corpo- ration, a sole proprietorship, a partnership, or the members or a trade or professional organization. For the purposes of this paper, a contract, con- spiracy, or combinat ion equals any agreement to restrain trade.

    3 For example, see: Denny's Marina v. Renfro Productions, 8 E3rd 1217 (7th Cir. 1993), summa- rized in footnote 30 on page 18.

    agreement among retailers is a per se unreasonable restraint of trade.

    Antitrust cases frequently refer to horizontal and vertical restraints. A horizontal restraint is one that af- fects a single economic level (e.g., all retailers or all wholesalers or all manufacturers). A vertical restraint generally involves several levels (e.g., a manufacturer acting in con- cert with several wholesalers or a wholesaler conspiring with several retailers). Vertical restraints are gen- erally analyzed under the "rule of reason" by courts to determine whether the restraint is unreason- able. Horizontal restraints may be analyzed under either the per se rule or the rule of reason.

    The per se rule bans conduct that the court presumes is unreasonable because of its "pernicious effect on competition and lack of any re- deeming virtue TM In other words, some conduct is unreasonable, pe- riod. The "rule of reason" requires courts to examine the reasons be- hind the agreement to determine whether it is a reasonable restraint of trade. Thus, in the case of trade- show-participation restrictions or exclusions, the underlying reasons for the restrictions or exclusions, and in particular the way those relate to the legitimate functions of the trade show or association, will be of significance, s

    The last element required to prove a violation of section one is injury. To prevail, a plaintiffmust show that the rules or restrictions caused some economic harm to its business. Other types of losses, such as business reputation or goodwill, are not components of anti-trust injury.

    Should all three elements be satisfied, the plaintiff almost assur- edly will receive money damages.

    4 Northern Pacific RR Co. v. United States, 350 U.S. 1 (1950).

    s Northwest Wholesale Stationers, Inc. v. Pacific Stationary & Printing Go., 472 U.S. 284 (1985).

    June 1998 13

  • Restricting trade-show access

    only to association members,

    or excluding importers or

    discounters, are the types ol

    restrictions that can lead

    to legal trouble.

    The "Rule of Reason" Where a trade or professional asso- ciation is involved, "refusals to deal" may be termed a "group boycott." Put simply, the members of a par- ticular trade or professional associa- tion are viewed as a group of indi- vidual businesses and not as a single entity when they refuse to deal with a company or business.

    Prior to 1985 the courts gener- alby considered group boycotts to be per se unreasonable restraints of trade. In 1985, however, the U.S. Supreme Court eased the general rule. 6 Now a group boycott effected through a trade or professional asso- ciation is examined through the lens of the rule of reason

    There are two exceptions to that rule. First, when a trade or profes- sional association is the dominant power in a market, then exclusion from an association-sponsored trade show is more likely to trigger a per se violation of section one than is exclusion from a show sponsored by an association that lacks dominant power. Dominant market power may be gauged by, for example, the number, popularity, desirability, and relative sizes of the market's trade shows.

    The trade show itself may be- come an "essential facility." If it is the only trade show in a given mar- ket, then it is more likely to be an essential facility than if there are many trade shows in the market. 7

    ~' Nvrthwest H/holesale Stationers, Inc. 7 The relevant market is itself a combination of

    two elements: (1) relevant product market and (2) relevant geographic market. When deternfin- ing relevant product market, 11o definite rule can be declared. Loosely stated, commodities reason- ably interchangeable by consumers for the same purpose make up that "part of the trade or commerce" called the relevant product market. The relevant geographic market, such as a town or a country, must be determined by examining the particular situation of the parties and the product. See: Muenster Butane, b~c. v. Stewart Co., 651 E2d 292, 295,297 (5th Cir. 1981); and United States v. E. I. Du Pont de Nemours & Co., 351 U.S. 377,391 (1956).

    Thus the relevant market will be determined by the facts on a case- by-case basis. It is a combination of the geographic market (e.g., metro- politan region, the Midwest, or an- other nation) and the market for a particular type of product or service (e.g., medical equipment, automo- tive accessories). In the case of a trade show, it may also include a particular level of distribution, such as wholesalers, retailers, manufactur- ers. For example, wholesalers of paper products in the Northwest or manfacturers of winter-sports cloth- ing in the United States.

    Unacceptable Exclusion Criteria Only a few reported court cases deal with trade-show restrictions. Two of those present good examples of unacceptable exclusion criteria, as the restrictions imposed by the associations were particularly anti- competitive.

    In one case the Winter Sports tLepresentatives Association was accused of restricting participation in its trade shows by limiting its trade-show invitations to certain retailers and by preventing compet- ing manufacturers' representatives from exhibiting at its shows.* The association was also accused of dis- criminating unreasonably in the assessment of expenses, rents, adver- tising charges, and other trade-show costs among exhibitors participating or seeking to participate in its trade shows.

    The U.S. Department of Justice and the association entered into a "consent decree" wherein the asso- ciation agreed to eliminate the questionable restrictions and prac- tices but admitted no wrongdoing. In language that's paraphrased and shortened here, the association agreed that it would not:

    x U.S.v. Winter Sports Representatives Association, blc., 1962 Trade Cas. (CCH) 70,418 (D.C.Cal. 1962).

    14 EURNELL HOTEL AND RESTAURANT ADMINISTRATION QUARTERLY

  • LAW

    Prohibit or regulate how trade- show exhibitors distributed invi- tations to the show;

    Prohibit or restrict the atten- dance at any trade show of any retailers holding a written invitation;

    Refuse to accept as an exhibitor or otherwise prevent any entity from exhibiting winter-sports goods at its trade shows (except for exhibitors wanting to show specific lines or brands of sport- ing goods that were already scheduled to be exhibited by a member of the association);

    Discriminate unreasonably among trade-show exhibitors in the allocation of space, exhibitor listings, and advertisements;

    Discriminate unreasonably among exhibitors in the assess- ment of expenses, rents, and ad- vertising charges, and other show costs ;

    Charge or assess any exhibitor more than its pro rata share of the costs involved in the planning, promotion, and operations of the show.

    In another case, six trade associa- tions serving material-handling- equipment manufacturers were ac- cused of restricting access to their association-sponsored trade shows by prohibiting some association members from showing goods pro- duced in foreign countries and pro- hibiting association members from participating in trade shows other than those sponsored by the six trade associations. 9 The U.S. Depart- ment of Justice sued the associations under section one of the antitrust act, resulting in a consent decree whereby the six associations agreed to cease the questionable practices. This case illustrates the misuse of exclusion criteria to target imported goods, restrict association members

    9 US. v. Material Handling Institute, 1973-1 Trade Cas. (CCH) 74,362 (D.C. Pa. 1973).

    from doing business with foreign manufacturers, and even restrict association members from exhibit- ing at competing trade shows.

    Acceptable Exclusion Criteria Due to the limitations of space and the need for efficient management, most trade-show organizers must place some participation limitations on exhibitors. Some exhibitors, of necessity, may be excluded, and some certainly will be saddled with less desirable floor space than others. How, then, does an association de- cide what exclusionary criteria and restrictions it may impose?

    KISS. There is one rule to re- member: keep it simple. Exclusion and restriction criteria should be simple, succinct, fair, and absolutely unrelated to competitive positions. Simple restrictions lend themselves to ease of application and generally are difficult to misuse or abuse. Most important, restrictions should be applied equally to all applicants and participants, and should not favor one business or type of busi- ness over another. (For example, restricting trade-show access only to association members, excluding importers, or excluding discounters are the types of restriction that can lead to legal trouble.) Jacobs offers the following seven guidelines for evaluating and developing trade- show restrictions.I (1) Is the association's trade show

    the sole, or one of only a few, trade shows existing in the industry or profession?

    (2) Have competing firms urged exclusion or expulsion of competitors?

    (3) Are there legitimate reasons for the exclusion, unrelated to the excluded firm's competitive position?

    lJerald A.Jacobs,"Trade Show Restrictions and Antitrust Liability" Association Counsel, Vol. 3, No. 1 (Spring 1986), p. 1.

    (4) Are the restrictions tailored narrowly to meet the association's needs?

    (5) Is access to the trade show linked to association membership?

    (6) Are there fair procedures for dealing with complaints and protests?

    (7) Are the criteria for gaining access objective, clear, and nonarbitrary?

    Restrictions should be related to the legitimate mechanics of manag- ing the show, such as the number of exhibitors that can be accommo- dated, the means by which potential exhibitors may apply to participate, and the way to allocate the exhibi- tion space. Restrictions that distin- guish among the competitive posi- tions of applicants or participants should be avoided. Finally, where there are restrictions, there should be a means by which complaints can be dealt with quickly and fairly.

    Other factor...

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