presents Antitrust Pitfalls for Trade Associations and …media.straffordpub.com/...risks-for-trade-associations-and-members... · presents Antitrust Pitfalls for Trade Associations

presents

Antitrust Pitfalls for Trade Associations and Members

presents

MembersAvoiding Anticompetitive Conduct Amid Increasing Federal Scrutiny

A Live 90-Minute Teleconference/Webinar with Interactive Q&AToday's panel features:

Lesli Esposito, Attorney, DLA Piper, PhiladelphiaPhilip C. Larson, Partner, Hogan & Hartson, Washington, D.C.

Christopher E Ondeck Partner Crowell & Moring Washington D C

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Christopher E. Ondeck, Partner, Crowell & Moring, Washington, D.C.

Wednesday, June 2, 2010

The conference begins at:1 pm Eastern12 pm Central

11 am Mountain10 am Pacific

You can access the audio portion of the conference on the telephone or by using your computer's speakers.Please refer to the dial in/ log in instructions emailed to registrations.

For CLE purposes, please let us know how many people are listening at your location by y

• closing the notification box • and typing in the chat box your• and typing in the chat box your

company name and the number of attendeesattendees.

• Then click the blue icon beside the box to sendto send.

For live event only.For live event only.

• If the sound quality is not satisfactory• If the sound quality is not satisfactory and you are listening via your computer speakers please dial 1-866-869-6667speakers, please dial 1 866 869 6667 and enter your PIN when prompted. Otherwise, please send us a chat or e-, pmail [email protected] so we can address the problem.

• If you dialed in and have any difficulties during the call, press *0 for assistance.

Antitrust Pitfalls for Trade Associations and MembersAssociations and Members

Potential ImmunitiesBy: Lesli C. Esposito, Attorney

DLA Piper LLPOne Liberty Place

1650 Market Street, Suite 4900Philadelphia, PA 19103Philadelphia, PA 19103

(215) 656-2432 (t)(215) 606-2132 (f)

[email protected]

June 2, 2010

4

Antitrust Laws

Section 1 of the Sherman Antitrust Act:– To prove a violation of Section 1 of the Sherman AntitrustTo prove a violation of Section 1 of the Sherman Antitrust

Act, the following must be established: 1. The existence of a contract, agreement, combination, or

conspiracy among two or more separate entities that, 2 Unreasonably restrains trade and 2. Unreasonably restrains trade, and 3. Affects interstate/foreign commerce

An agreement among firms has the same economic effect whether it is among the gcompanies themselves or a decision of a trade association – it is analyzed the same way under Section 1.

5

Antitrust Laws

Section 5 of the FTC Act– Broader than Section 1 of the Sherman Act

(“Unfair methods of competition in or affecting commerce, and unfair or deceptive acts orcommerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.”)

State law claims

6

Potential Immunities

Noerr-Pennington State Action Standard Setting

7

TRADE ASSOCIATIONSTRADE ASSOCIATIONSImmunities

NOERR-PENNINGTONANTITRUST IMMUNITY

8

N P i tNoerr-PenningtonAntitrust Immunity

What is Noerr-Pennington? What conduct is protected? Exceptions to Noerr-Pennington Specific Application to Trade Associations

9

Noerr-Pennington Immunity

Competitors often petition government entities (local, state and federal) to restrict the ability of rivals tostate and federal) to restrict the ability of rivals to compete in the marketplace.

This petitioning can occur through trade p g gassociations.

Courts have conferred antitrust “petitioning immunity” on a wide range of conduct designed toimmunity” on a wide range of conduct designed to induce the government to restrain competition.

10


The Noerr-Pennington doctrine provides antitrust immunity for individuals businesses and tradeimmunity for individuals, businesses and trade associations petitioning for competition-restricting government action.

The doctrine was established by the courts, not Congress. Flows from the First Amendment.

– Eastern R. Conf. v. Noerr Motors, 365 U.S. 127 (1961) and– United Mine Workers v. Pennington, 381 U.S. 657 (1965).

11


Protected ConductEff t t i fl th l i l ti (L bb i ) Efforts to influence the legislative process (Lobbying)

– Eastern R. Conf. v. Noerr Motors, 365 U.S. 127 (1961) A group of railroads lobbied the legislature to restrict g p gcompetition from the trucking industry. The Supreme Court held that a violation of the Sherman Act cannot be based on attempts to influence the passage or enforcement of laws. The Sherman Act does not prohibit two or more persons from acting together to influence legislation even if it would result in a restraint on trade or a monopoly.

12


Protected ConductEff t t i fl th d i i t ti Efforts to influence the administrative process

– United Mine Workers v. Pennington, 381 U.S. 657 (1965)Coal mine operators and their union tried to persuade the p pSecretary of Labor to establish a higher minimum wage for coal workers. The Supreme Court held “(j)oint efforts to influence public officials do not violate the antitrust laws even though intended to eliminate competition.”

13


Protected ConductEff t t i fl th dj di t Efforts to influence the adjudicatory process

– California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508 (1972)The Supreme Court extended Noerr-Pennington to adjudicatory processes, including litigation. “The same philosophy governs the approach of citizens or groups of them to administrative agencies (which are both creatures of the legislature, and arms of the executive) and to the courts.”

14


Specific Application to Trade AssociationsT d A i ti t k ti b h lf f th i Trade Associations take action, on behalf of their members, with the government in a variety of ways:

– Association executive testifying to a subcommittee y gregarding proposed legislation

– Political action arm of an association coordinating support of certain legislationg

– Association bringing legal action for or against a license application

This is all protected conduct under Noerr-Pennington.

15

This is all protected conduct under Noerr Pennington.

Exceptions to Noerr-Pennington

Sham Exception– Using the government process as an anticompetitive weapon, not g g p p p ,

genuinely seeking favorable government action, by engaging in objectively baseless conduct

Supplying False InformationMi t ti d f l i f ti ft t t t d– Misrepresentations and false information are often not protected by Noerr-Pennington. Courts have looked at whether misrepresentations were intentional; the forum involved; the antitrust significance of the false statements; and whether the

i t ti t i lmisrepresentation was material. Conspiracies with Public Officials

– Government officials conspiring with private parties is not protected conduct

16

protected conduct

Exceptions to Noerr-Pennington

FTC v. Superior Court Trial Lawyers Association, 493 U.S. 411 (1990)

Defense attorneys jointly refused to represent indigents until the city, Washington, D.C., raised its rates. The attorneys agreed that absent Noerr-Pennington immunity their actions would be per se illegal.

The Supreme Court held that Noerr-Pennington did not apply. “(I)n the N th ll d t i t f t d th i t d dNoerr case the alleged restraint of trade was the intended consequence of public action; in this case the boycott was the meansby which respondents sought to obtain favorable legislation.” Means versus outcome.

Trade associations may lobby the government for action that will Trade associations may lobby the government for action that will restrain trade, but you cannot use an illegal restraint of trade as the means to try to get government action.

17

TRADE ASSOCIATIONSTRADE ASSOCIATIONSImmunities

THE STATE ACTION DOCTRINETHE STATE ACTION DOCTRINE

18

State Action Immunity

Noerr-Pennington protects efforts by citizens d f iti (i t dand groups of citizens (i.e. trade

associations) that encourage the adoption of government policies even if those policesgovernment policies, even if those polices suppress competition.

State Action Immunity similarly protects the State Action Immunity similarly protects the government policies themselves from antitrust liability.

19

y


Parker v. Brown, 317 U.S. 341 (1943)E t bli h d th St t A ti D t i– Established the State Action Doctrine

– State of California developed an agricultural marketing plan to stabilize the price of raisins by allowing raisin producers

d di t ib t t d t i h t t f th i iand distributors to determine what percentage of the raisin crop would be withheld from the market. The Supreme Court held that Congress did not intend the Sherman Act to apply to such state action Allowed restraint on competitionapply to such state action. Allowed restraint on competition because conduct sanctioned by the State.

20


Health Care Equalization Committee of the Iowa Chiropractic Societ Io a Medical SocietChiropractic Society v. Iowa Medical Society, 51 F.2d 1020 (8th Cir. 1988)

– Health care service organization complied with legislative mandate to refuse to deal with certain chiropractors; assignee of 120 chiropractorsrefuse to deal with certain chiropractors; assignee of 120 chiropractors sued health care service organization for violations of the Sherman Act; organization sought immunity under state action doctrine.

– Court held conduct of private organization was protected under the state action doctrine because: 1. the challenged restraint was one “clearly articulated and affirmatively expressed as state policy” and 2. the policy was “actively supervised by the State itself.”

21


Lawline v. American Bar Association,956 F 2d 1378 (7th Ci 1992)956 F.2d 1378 (7th Cir. 1992)

– Unincorporated association of lawyers and laypersons challenged American Bar Association’s Model Rules ofchallenged American Bar Association s Model Rules of Professional Responsibility prohibiting lawyers from forming partnerships with non-lawyers.

– The rules in question were immune from antitrust liabilityThe rules in question were immune from antitrust liability because the Illinois Supreme Court, a state actor, adopted the rules, NOT because the ABA drafted them.

22

TRADE ASSOCIATIONS

STANDARD SETTING

23

Standard Setting

Courts recognize that every trade association must have rules or criteria.or criteria.

Membership rules or criteria can restrict trade, at least incidentally.

However when a trade association promulgates industry However, when a trade association promulgates industry standards, it runs the risk of being accused of unlawful horizontal and vertical concerted refusal to deal.

24

Standard Setting

Types of standards:– Technical standards– Quality standards

S f t t d d– Safety standards– Seals of approval– Certifications– Certifications

25

Standard Setting

Allied Tube & Conduit Corp. v. Indian Head, I 486 U S 492 (1988)Inc., 486 U.S. 492 (1988)– Supreme Court recognized that when trade

associations promulgate safety standards basedassociations promulgate safety standards based on objective expert judgments and through procedures that prevent the standard-setting

f b i bi d b b ithprocess from being biased by members with economic interests in stifling competition, the standards can have pro-competitive advantages.

26

p p g

Standard Setting

Other benefits:– Facilitating interoperability of products and systemsg p y p y– Public safety– Creating open networks based on objective criteria– Making it easy for consumers to identify the appropriate product

and be confident of its standard setting applicability

Per Se Analysis vs. Rule of ReasonG ll t ill l th l f b t– Generally, courts will apply the rule of reason absent some showing that the standard was deliberately distorted by competitors and market foreclosure. Allied Tube & Conduit Corp. v. Indian Head, 486 U.S. 492, 501 (1988) (noting that most lower

t l th l f l i b i t t d d

27

courts apply the rule of reason analysis because private standards can have significant pro-competitive advantages).

Standard Setting

Trade associations promulgating standards should understand the risks particularly when the tradeunderstand the risks, particularly when the trade association has a large share of the relevant market and the membership is closed:

The standard setting could be viewed as a cover for– The standard setting could be viewed as a cover for agreements to fix prices, limit output, or allocate markets

– The standard setting could unreasonably limit competition on quality and innovation.q y

– The standard setting could be used by members to harm or exclude competitors from the relevant market.

28

Standard Setting

What should NOT be part of a standard setting discussion:discussion:

– Confidential business information, including research and development

– Members’ prices and pricing methodsMembers prices and pricing methods– Members’ profit margins– Members’ levels of output and geographic sales territories

Joint Price advertising– Joint Price advertising– Complaints about certain entities’ business practices– Whether to do business with particular entities

29

Standard Setting

When a standard promulgated by a trade association is challenged as an unlawful concerted refusal tois challenged as an unlawful concerted refusal to deal, courts will generally examine the real goal behind the standard and evaluate the standard to determine if it is reasonably related to that goal and if it is objective.

In doing so courts will perform a balancing test– In doing so, courts will perform a balancing test pro-competitive benefits versus anticompetitive harm

30

Standard Setting

Key factors court will examine in determining whether a standard promulgated by a tradewhether a standard promulgated by a trade association unreasonably restrains trade:

– The economic detriment imposed on non-qualifying (excluded) entities.

– The scope of the restrictions in relation to their need– Market structure– The application of the standard– Whether members are forced to adopt the standard

standards should be voluntary

31

standards should be voluntary

Standard Setting

Other important factors:– Who is the party enforcing the standard?

The trade association itself? Courts will be suspicious if this is the case.

Consumers? Government regulatory agencies? More protection

Procedural safeguards notice and the right to– Procedural safeguards notice and the right to be heard before being excluded.

32

Standard Setting

Special industries require self-regulation:– Healthcare

Exclusion of doctors allowed for lack of professional competence or conduct.

Ethical rules required Standards must still serve a legitimate purpose.

– Sports Leagues and AssociationsSports Leagues and Associations Standards required in order to maintain competition within the

league or association. Standards must still serve a legitimate purpose.

33

g p p

Standard Setting

American Needles, Inc. v. National Football League 2010 U.S. Lexis 4166 (U.S. May 24, 2010)( y , )

For decades, an NFL marketing arm sold nonexclusive licenses to manufacture insignia caps to several vendors, In 2000, however, it decided to sell a 10-year, yexclusive license for nearly all team caps to Reebok. Former supplier, American Needle Inc., filed suit under the Sherman Antitrust Act. The NFL responded that it wasn’t a combination at all because the league effectively was a single entity. Seventh U.S. Circuit Court of Appeals in Chicago agreed with the NFL and threw out the law suit.

34

Standard Setting

A unanimous Supreme Court reversed the appeals-court decision and sent the case back to the lower court to be reconsidered. Justice John Paul Stevens wrote the decision.

Justice Stevens wrote that the lower court erred when it d fi d “NFL F tb ll” d t ti i tdefined “NFL Football” as a product competing against other entertainments, while discounting the fact that NFL teams compete against each other in the marketplace as well as on the field.

The NFL isn’t a single entity but rather a consortium of 32 separately owned teams that compete with one another.

35

Standard Setting

S. Ct. ruled that the NFL could act as a single entity in certain situations, such as establishing the rules of the gsport. NFL cannot act as a single entity in relation to merchandise trademark licenses, because teams are potential competitors to suppliers and therefore should act as separate entitiesact as separate entities.

Justice Stevens acknowledged that NFL teams shared an interest in the league’s profitability, and that the nature of sports competition required cooperation in p p q pscheduling games and other decisions, but “it does not follow that concerted activity in marketing intellectual property is necessary to produce football.”

36

Antitrust and Trade AssociationsAntitrust and Trade AssociationsPhilip C. Larson, Hogan LovellsWashington, DC(202) 637 5738 Strafford Webinar(202) 637-5738 Strafford [email protected] June 2, 1010

The interaction of trade associations with antitrust lawsantitrust laws

Antitrust laws recognize that trade associations can benefit competition

But cooperation between competitors can invite antitrust challenges

Provide information on important x Coordination on prices or other

associations can benefit competition can invite antitrust challenges

Provide information on important regulatory developments

Advocacy and other public policy representation

x Coordination on prices or other terms

x Allocation of markets Promote consumer awareness of

industry issues and developments

Facilitate legitimate

x Collective boycotts

x Certain membership restrictions Facilitate legitimate benchmarking activities

Self-regulation and certain ethical standards

x Certain membership restrictions

x Abuse of standards making process

Provide appropriate technical standards

38

Why should associations worry about antitrust laws?antitrust laws?

• Examples of past and current antitrust actionsN t’l S ’ f P f’l E i U it d St t 435 U S 679 (1978)o Nat’l Soc’y of Prof’l Engineers v. United States, 435 U.S. 679 (1978) (holding that industry code of conduct restricting certain bidding practices was unlawful).

o United States v Nat’l Ass’n of Realtors Civ No 05C 5140 (N D Illo United States v. Nat l Ass n of Realtors, Civ. No. 05C-5140 (N.D. Ill., November 18, 2008) (consent decree between the U.S. and the National Association of Realtors prohibiting association rules that restrict broker’s ability to use certain online technologies) .

o United States v. ABA, Civil Action No. 95-1211 (D.D.C. June 25, 1996) (prohibiting certain conduct with regard to ABA accreditation of law schools that excluded competitors of existing accredited law schools); http://www justice gov/atr/public/press releases/2006/216804 htm (presshttp://www.justice.gov/atr/public/press_releases/2006/216804.htm (press release reporting that ABA admitted to a violation of the consent decree in 2006, resulting in a $185,000 fine).

39

Why should associations worry about antitrust laws? (cont.)antitrust laws? (cont.)

• Examples of past and current antitrust actions (cont.)o In the Matter of Nat’l Ass’n of Music Merchants Inc FTC File No 01o In the Matter of Nat l Ass n of Music Merchants, Inc., FTC File No. 01-

0203 (April 10, 2009) (consent decree barring the National Association of Music Merchants from facilitating exchanges of price information and business strategies between music instrument manufacturers).

o In the Matter of Boulder Valley Individual Practice Ass’n, FTC File No. 051-0252 (December 24, 2008) (consent decree prohibiting certain activities, including group refusals to deal and group negotiations, and restricting the exchange of information concerning whether or on what terms physicians will do business with payors).

o In the Matter of M. Catherine Higgins, FTC File No. 051-0252 (February 5, 2010) (consent restricting defendant’s individual activities within and with respect to the Boulder Valley Individual Practice Association andwith respect to the Boulder Valley Individual Practice Association and individual competitors; the consent decree resulted from an investigation of an alleged violation of the BVIPA consent decree).

o American Needle, Inc. v. National Football League, No. 08-661 (U.S. S. Ct M 24 2010) ( l i l f t NFL li i f t

40

Ct. May 24, 2010) (applying rule of reason to NFL licensing of team-labeled apparel).

Why should associations worry about antitrust laws?antitrust laws?

• The Obama Administration can be expected to be even more vigorous in its enforcement activities than some prior administrationsits enforcement activities than some prior administrations

• Potential for association, member, and individual liability (both civil and criminal) o Association liability: may be liable for anticompetitive actions by the y y p y

association or by members acting with “apparent authority.” [E.g., FTC v. Super. Ct. Trial Lawyers Ass’n, 493 U.S. 411 (1990) (association liable for own conduct); Am. Soc’y of Mechanical Engineers v. Hydrolevel Corp.,456 U.S. 556 (1982) (association liable for conduct of members acting with apparent authority).]Member liability: members may be liable for agreements with othero Member liability: members may be liable for agreements with other members, but mere membership in an organization is not enough. [E.g., Allied Tube & Conduit v. Indian Head Inc., 486 U.S. 492 (1988) (member company liable for role in standard setting); Kendall v. Visa U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008) (member not liable due to lack of evidence of an agreement).] g ) ]

o Individual liability: association officers and directors who knowingly participate in violation of antitrust laws may be liable. [E.g., Reifert v. S. Cent. Wis. MLS Corp., 368 F. Supp.2d 912 (W.D. Wis. 2005) (directors of association held liable for ratifying and approving unlawful tying arrangement).]

41

Primary antitrust statutes involvedPrimary antitrust statutes involved

• Sherman Act § 1 (and possibly § 2 as well)• Federal Trade Commission Act § 5 (“unfair methods

of competition”)• State antitrust laws• European Union and laws of other nations outside

the US

42

Sherman §1: agreementsSherman §1: agreements

• Sherman §1 claims must be premised on “contract[s], bi ti [ ] i [i ] ” 15 U S C §1combination[s]… or conspirac[ies].” 15. U.S.C. §1.

o “[E]very action by a trade association is not concerted action by the association members.” [ADISAT, Div. of Skylight, 181 F.3d 216, 234 (2d Cir. 1999).]

o “[T]here must be direct or circumstantial evidence that reasonably tends to prove that [alleged conspirators] had a conscious commitment to a common scheme designed to achieve an unlawful objective.” [Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 768 (1984).]

o Motive to conspire must be plausible. [Matsushita Elec. Indus. Co. v. Zenith p p [Radio Corp., 475 U.S. 574 (1986).]

o Agreement must be between independent actors. [American Needle, Inc. v. NFL, No. 08-661 (U.S. S. Ct. May 24, 2010); Copperweld Corp. v. Independence T b C 467 U S 752 (1984) ]

43

Tube Corp., 467 U.S. 752 (1984).]

Most serious risk is horizontal agreement among competitorsamong competitors

• Greatest risk is agreement in areas traditionally held to be per se illegalper se illegal.• Agreement on price or other terms of relationship with customers or

other third parties. [E.g., Freeman v. San Diego Ass’n Realtors, 322 F.3d 1133 (9th Cir. 2009) (fixed service fee for realty service held illegal).]) ( y g ) ]

• Customer allocation. [E.g., In re Ethylene Propylene Diene Monomer (EPDM) Antitrust Litigation, 681 F.Supp.2d 141 (D. Conn. 2009) (denying motion for summary judgment against claim that members of a manufacturers’ association conspired to allocate customers and fix prices).]

• Geographic allocation [E g U S v Topco Associates Inc 405 U S 596 (1972)Geographic allocation. [E.g., U.S. v. Topco Associates, Inc., 405 U.S. 596 (1972) (allocation of territories by regional supermarket chains in a supermarket trade association held per se unlawful).]

• Output restrictions. [E.g., Tenn. Ex rel. Leech v. Highlawn Mem’l Cemetery, 489 F. Supp. 65 (E.D. Tenn. 1980) (agreements not to perform burials on Sunday held per se illegal); but see In ( ) ( g p y p g );re: Detroit Auto Dealers Ass'n, Inc., 955 F.2d 457 (6th Cir. 1992) (analyzing an agreement to restrict hours by automobile dealers under the rule of reason).]

• Agreements that are per se illegal violate antitrust laws regardless of their competitive effects

44

regardless of their competitive effects.

Most serious risk is horizontal agreement among competitors (cont.)among competitors (cont.)

• Refusals to deal with competitors, suppliers, or customers (b tt ) ti ill l(boycotts) are sometimes per se illegal. [E.g., Northwest Wholesale Stationers v. Pac. Stationary, 472 U.S. 284 (1985) (termination of member from buying organization not per se illegal where organization did not have market power or exclusive access to input necessary to compete); FTC v Superior Courtpower or exclusive access to input necessary to compete); FTC v. Superior Court Trial Lawyers Association, 493 U.S. 411 (1990) (boycott to fix prices per se illegal regardless of market power or exclusive access to a necessary input).]

• Other agreements subject to analysis of some form of rule ofOther agreements subject to analysis of some form of rule of reason.

• Rule of reason analyses are based on competitive effects (less attractive targets for private plaintiffs and antitrust enforcement agencies).

45

More subtle risks of agreementMore subtle risks of agreement

• Agreements need not necessarily be explicit or even i t d dintended.o Statements on a sensitive topic that speaker (and other attendees)

never dream would be construed as leading to an agreement.never dream would be construed as leading to an agreement.

o “There’s too much capacity chasing too few sales in this industry.”

o “These customer warranty and indemnification demands have gotten idi l ”ridiculous.”

o “The best practice is to ….”

• “If you can’t agree on it don’t discuss it” unless you have the• If you can t agree on it, don t discuss it unless you have the advance approval of experienced counsel.

• Recommend that counsel provide advice on how to avoidRecommend that counsel provide advice on how to avoid more subtle risks prior to discussion.

46

Information exchangesInformation exchanges

• Includes, for instance, exchanges of information for better-informed member business decision making benchmarking safety and securitymember business decision making, benchmarking, safety and security purposes, public relations, and to facilitate industry legislative efforts.

• Can be pro-competitive and lawful if done correctly, even in areas that are competitively sensitive (e g price) [E g DOJ Business Review Letter toare competitively sensitive (e.g., price). [E.g., DOJ Business Review Letter to Nat’l Ass’n of Small Trucking Cos. (Apr. 9, 2007) (stating that DOJ had no present intent to challenge trade association’s collection and distribution of aggregated survey data based on sales prices older than three months).]

C• Could also lead to claim that exchange is being used to coordinate member competitive decision making. [E.g., United States v. Container Corp. of Am., 393 U.S. 333 (1969) (exchanges of current price data on specific orders held a violation of antitrust laws despite the absence of an explicit agreement to fix prices); United p p g p );States v. Utah Soc’y for Healthcare Human Resources Administration, Civ. Action. No. 94C282G (C.D. Utah Sept. 14, 1994) (consent decree prohibiting the exchange of current and prospective nurse wage information entered between DOJ and a healthcare association to settle charges that members of the association entered into an information sharing agreement that allegedly depressed nurse wages) ]

47

sharing agreement that allegedly depressed nurse wages).]

Information exchanges (cont.)Information exchanges (cont.)

• Key recommended safeguardso Identifiable, legitimate purpose for the exchange o Historical information (2-3 months old) instead of present

or f t reor futureo Information collected by third party (e.g., industry

consultant, accounting firm, or even the association itself) , g , )that does not share individual responses with association members or other market participantsI f ti di i t d l i t d fo Information disseminated only in aggregated form

48

Information exchanges (cont.)Information exchanges (cont.)

• Other safeguardso Destroy individual responses after aggregationo Have information request reviewed in advance by counselo Have draft report of aggregated information reviewed in

advance by counselo Don’t discuss results among members without advanceo Don t discuss results among members without advance

approval of counsel

49

Membership decisionsMembership decisions

• Includes decisions on membership applications and terminations of existing members

• The antitrust laws recognize that trade associations “must t bli h d f bl l i d t f tiestablish and enforce reasonable rules in order to function

effectively.” [Northwest Wholesale Stationers v. Pac. Stationary & Printing Co., 472 U.S. 284 (1985).]

• Certain membership decisions could nonetheless lead to group boycott claims. [E.g., Golden Bridge Technology, Inc. v. Nokia, Inc., 416 F Supp 2d 525 (E D Tex 2006) (denying motion to dismiss per se boycott claim based on aF.Supp.2d 525 (E.D.Tex. 2006) (denying motion to dismiss per se boycott claim based on a denial of membership that effectively excluded plaintiff from the market)]

50

Membership decisions (cont.)Membership decisions (cont.)

• Legitimate restrictionso Industry restrictions (i.e., member must be

participant in relevant industry). [E.g., Clamp-All Corp. v. Cast Iron Soil Pipe Institute, 851 F.2d 478 (1st Cir. 1988) (upholding pipe manufacturing trade association’s limitation of membership to pipemanufacturing trade association s limitation of membership to pipe manufacturers).]

o Level in the relevant industry distribution chain. [Id.]

Geographic locationo Geographic location. [Cf. Ralph C. Wilson Indus. v. Chronicle Broadcasting Co., 794 F.2d 1359 (9th Cir. 1986) (approving various geographic-based fees for association’s news feeds to members based on the member station’s location).]

o Adherence to legitimate code of ethics (more detail below)

o Other

51

o Other


• Recommended safeguardso Objective ruleso Uniform and consistent enforcement (e.g. don’t play

fa orites or single o t a disco nter or n s allfavorites, or single out a discounter or unusually aggressive competitor)

o Procedurally fairyo Provide disinterested decision makers

52


• Excluded applicant or member will likely need to show titi i j t ilcompetitive injury to prevail. [E.g., Perry v. Rado, 504 F. Supp.2d. 1043 (E.D. Wash.

2007) (dismissing claim based on membership revocation where plaintiff failed to show competitive injury); In re Appraiser Foundation Antitrust Litigation, 867 F. Supp. 1407 (D. Minn. 1994) (same)]

More likely where association or its members collectively have marketo More likely where association or its members collectively have market power and membership necessary in order to compete effectively. [E.g., Northwest Wholesale Stationers v. Pac. Stationary & Printing Co., 472 U.S. 284 (1985) (holding that a per se boycott theory was inappropriate to evaluate claim based(1985) (holding that a per se boycott theory was inappropriate to evaluate claim based on member’s expulsion from a purchasing cooperative without market power or exclusive access to an input necessary to compete)]

53

Non-member access to association events and servicesand services

• Not normally required to grant non-members access unless necessary for non member to compete andunless necessary for non-member to compete and no viable alternatives.[E.g., Thompson v. Metro. Multi-List, Inc. 934 F.2d 1566 (11th Cir. 1991) (claim that denial of essential real estate listing service to non-members violated antitrust laws held sufficient tolisting service to non members violated antitrust laws held sufficient to withstand motion for summary judgment).]

• Association can normally charge non-members more for participating in association events andmore for participating in association events and services. o Members typically cover some costs through their dues.o Members not required to subsidize non memberso Members not required to subsidize non-members.o No hard rules, but best to have reasonable cost-related

basis for charges to non-members (but generally no need to limit charge just to cost recovery)

54

to limit charge just to cost recovery).

Codes of ethics and advertising rulesCodes of ethics and advertising rules

• Can serve important self-regulatory purposes and preserve the reputation and integrity of the association and industry it represents. [E.g., In re Appraiser Foundation Antitrust Litigation, 867 F.Supp. 1407 (D Mi 1994) (h ldi h d d h ld hi l d d d d(D. Minn. 1994) (holding that trade group created to uphold ethical code and standards was lawful under the antitrust laws)].

• Can also be misused to reach unlawful agreement or restrict titi d t b tt th l icompetition and prompt boycott or other claims. [E.g., National

Society of Professional Engineers v. United States, 435 U.S. 679 (1978) (holding that industry code of conduct restricting certain competitive bidding practices was unlawful).]

55

Codes of ethics and advertising rules (cont.)Codes of ethics and advertising rules (cont.)

• Subject to earlier discussion on substance and enforcementK d ti f l f l d ti d f t• Key recommendations for lawful adoption and enforcemento Legitimate purposeo Objective standardsjo Uniform and consistent enforcemento Fair enforcement procedureso Can forbid unlawful conduct but should generally avoid restricting oro Can forbid unlawful conduct but should generally avoid restricting or

prohibiting lawful conduct that some may find objectionable.• Aggressive competition may be objectionable to some or be regarded as

“unethical.”• Also avoid

o “veto power” by one member over a troublesome competitoro other means by which association may exclude discounters

56

Trade ShowsTrade Shows

• Two main situations where antitrust issues may ariseo Exclusion or restriction of exhibitor access to trade show

fo Boycott of trade show

57

Trade Shows (cont.)Trade Shows (cont.)

• Exhibitor exclusion issues. [E.g., Gregory v. Fort Bridger Rendezvous Ass’n, 448 F 3d 1195 (10th Cir 2006) ]448 F.3d 1195 (10th Cir. 2006).]

o Potential subject of a boycott claim (although may be unilateral)o Generally subject to rule of reasono Excluded exhibitor will normally need to show competitive harm in

order to prevail. [E.g., id. (affirming grant of summary judgment where excluded exhibitor did not provide any evidence of competitive harm); but see Denny’s Marina, Inc v Renfro Productions Inc 8 F 3d 1217 (7th Cir 1993) (exclusion of discounterInc. v. Renfro Productions, Inc., 8 F.3d 1217 (7th Cir. 1993) (exclusion of discounter held per se illegal where competitors excluded plaintiff to eliminate pricing competition).]

o Good practice to adopt and enforce fair and objective rules and procedures in a manner analogous to those discussed above re p gmembership.

o In case of space shortage, safest course is normally for show sponsor to allocate based on some fair and objective basis.

58

j

Trade Shows (cont.)Trade Shows (cont.)

• Boycott of trade showso Competitor agreement on which shows to attend may

result in boycott liability. [E.g., Full Draw Productions v. Easton Sports, Inc., 182 F.3d 745 (10th Cir. 1999); Carpet Group International v. Oriental Rug , ( ); p p gImporters Ass’n, Inc., 227 F.3d 62 (3d Cir. 2000).]

o Exhibitors and attendees should make individual decisions on what shows to attendon what shows to attend.

o Associations should promote their own show but avoid activities that could be construed as inducing a boycott of a competing show.

59

Special thanks to Christian Rowan for his assistance in preparing this presentation

www.hoganlovells.com

Hogan Lovells has offices in:

Abu DhabiAlicanteAmsterdamBaltimoreBeijingBerlinBoulderBrussels

CaracasChicagoColorado SpringsDenverDubaiDusseldorfFrankfurtHamburg

Ho Chi Minh CityHong KongHoustonJeddah*LondonLos AngelesMadridMiami

MoscowMunichNew YorkNorthern VirginiaParisPhiladelphiaPragueRiyadh*

San FranciscoShanghaiSilicon ValleySingaporeTokyoWarsawWashington DCZagreb*Brussels

Budapest*HamburgHanoi

MiamiMilan

RiyadhRome

Zagreb

"Hogan Lovells" or the "firm" refers to the international legal practice comprising Hogan Lovells International LLP, Hogan Lovells US LLP, Hogan Lovells Worldwide Group (a Swiss Verein), and their affiliated businesses, each of which is a separate legal entity. Hogan Lovells International LLP is a limited liability partnership registered in England and Wales with registered number OC323639. Registered office and principal place of business: Atlantic House, Holborn Viaduct, London EC1A 2FG. Hogan Lovells US LLP is a limited liability partnership registered in the District of Columbia.

The word "partner" is used to refer to a member of Hogan Lovells International LLP or a partner of Hogan Lovells US LLP, or an employee or consultant with equivalent standing and qualifications, and to a partner, member, employee or consultant in any of their affiliated businesses who has equivalent standing. Rankings and quotes from legal directories and other sources may refer to the former firms of Hogan & Hartson LLP and Lovells LLP. Where case studies are included, results achieved do not guarantee similar outcomes for other clients. New York State Notice: Attorney Advertising.

© Copyright Hogan Lovells 2010. All rights reserved.

* Associated offices

Antitrust Pitfalls for Trade Associations and Members

Antitrust Compliance Issues and StrategiesStrafford Webinar

Christopher E. OndeckCrowell & Moring

June 2 2010

Privileged and Confidential

June 2, 2010

OutlineOutline

» What are the risks?

» The new enforcement team – who they are, what they have done so far, and what to expect.have done so far, and what to expect.

» What have we learned from the first 18 months of the new administration?

C li H i ti i l t li i» Compliance: How associations can implement policies and procedures to minimize antitrust risk.

Privileged and Confidential 62

First, The AdviceFirst, The Advice

» Turn on radar to monitor:– Advocacy positions and industry implementation– Voluntary and involuntary standards– Information exchange vs. industry output levelsg y p– Membership strategies/restrictions

» Keep an eye on the politics (where are the DOJ/FTC on» Keep an eye on the politics (where are the DOJ/FTC on your industry and issues?)

» Fill in the boxes on the checklist.


What are the risks?


How real are the risks?How real are the risks?

» Haven’t all the traps already been sprung?» Haven t all the traps already been sprung?

– The American Society of Association Executives states: “In 2004 th ti t d 86 054 t d d f i l2004, there were an estimated 86,054 trade and professional associations.”

– The association path is well-trodden.Empirically associations appear safe– Empirically, associations appear safe.

» From a practical point of view, are there really any risks f li ith tit t l ?from non-compliance with antitrust law?


Two Buckets of Antitrust RiskTwo Buckets of Antitrust Risk

» Obvious risksSt i f i i l ti it t th i ti– Stemming from criminal activity to use the association as cover for ‘intentional’ agreements on price, output, customer or territory, or boycotts.

» Nuanced risks– Usually civil, stemming from well-meaning association

activities that (allegedly) may unfairly disadvantageactivities that (allegedly) may unfairly disadvantage competitors, customers, or suppliers.

– These are our focus.


Increasingly Complex Civil Risksg y p

» Historically, associations as a class of business have been the single largest source of antitrust cases under U.S. antitrust law. g g

» Associations increasingly engage in activities that trigger antitrust risk without intending to do so.

» Compliance “gaps” and blind-spots for associations can lead to investigations and private lawsuits:– Meetings– Lobbying and public advocacy (e.g., healthcare, climate change; and

industry responses)industry responses)– Standard setting– Information exchanges– Membership restrictionsp– Codes of ethics and other industry self-regulation– Public statements and publications– Other restrictive practices


– Process failures

The New Enforcement Team


“Th f t i ’t h t it“The future ain’t what it used to be.”

-- Yogi Berra


President Obama: What Can We Expect From his Ad i i t ti

» During the campaign, Obama assured voters he would “reinvigorate antitrust enforcement”

Administration

would reinvigorate antitrust enforcement

» “I will assure that we will have an Antitrust Division– Obama 2008 Campaign Statement

» I will assure that we will have an Antitrust Division that is serious about pursuing cases … We’re going to have an Antitrust Division in the Justice Department that actually believes in antitrust law”Department that actually believes in antitrust law

» “An Obama administration will look carefully at key– Competition Law 360, Oct. 24, 2008

» An Obama administration will look carefully at key industries to ensure that the benefits of competition are fully realized by consumers”


– Obama 2008 Campaign Statement

New Agency Leadership

Christine Varney, Assistant Attorney General Strong “political” background and resume Former FTC commissioner (Clinton appointee) Focus on innovation, high tech industries, privacy

“It is time for the Antitrust Division to step forward again. . . . As p gantitrust enforcers, we cannot sit on the sidelines any longer”

Jon Leibowitz, FTC Chairman Long career as Senate staffer FTC Commissioner since 2004 Strong proponent of expanding FTC enforcement

“The Commission should not be tied to the more technical definitions of consumer harm that limit applications of the Sherman Act when we are looking at pure Section 5 violations”


Recent DOJ/FTC Statements Re Increased Enforcement

» “Continued criminal and civil enforcement under Section 1 of the

Re Increased Enforcement

Sherman Act will also be an important part of the Antitrust Division's response to the distressed economy.” Christine Varney “Vigorous Antitrust Enforcement in this Challenging Era”

» “Trade associations properly provide many services for their members, but enabling competing sellers to work together to coordinate higher prices for their products is not a legitimatecoordinate higher prices for their products is not a legitimate function.” David P. Wales, Acting Director of the FTC’s Bureau of Competition


U.S. Antitrust Enforcers Are Focusing on Trade A i tiAssociations

» DOJ full-frontal assault on possible criminal activities in associationsassociations– DOJ running over 100 grand juries, with more than half focused on price

fixing cartels -- most involve associations» Cartels “frequently use trade associations as a means of

providing ‘cover’ for their cartel activities.”U.S. DOJ Director of Criminal Enforcement, Antitrust Division

» “So much for the good part of trade associations, the bad part of trade associations is cartels ”of trade associations is cartels.

Commissioner, Federal Trade Commission


What Have We Learned From the First 18 Months of the New Administration?


Industry-wide InvestigationsIndustry wide Investigations» The DOJ, FTC and EC have announced industry-

wide investigations for:wide investigations for:– Internet/Technology firms;– Financial Services;– Pharma;– Telecom;

Agriculture;– Agriculture; – Who’s next? (transport, building materials, natural

resources, retail, food & beverage, automotive, other h lth ?)healthcare...?)


How is enforcement different?How is enforcement different?

» Politics now matter– Investigations based on political positions taken by

associations– Hitting the outer-edges of Noerr-Pennington– Hitting the outer-edges of Noerr-Pennington

» Major push to roll-back immunities – Industry immunities (e g railroads) and possiblyIndustry immunities (e.g., railroads) and possibly

conduct immunities (lobbying)» New look at vertical issues

– Once favored ‘seller’ industries/associations now under the gun


Compliance


Dealing With Competitors At Association Meetings ... Caref llCarefully

» Principal legal concern: Agreements among competitors not to competecompete

» Obvious examples:– Price fixing...most tempting

Market/customer allocation most complained about– Market/customer allocation...most complained about– Bid rigging...most obvious– Boycotts...most likely to trip-up a discussion

» Not so obvious examples– Voluntary and involuntary standards...most common– Advocacy positions...most current– Information exchange vs. industry output levels...most mentioned in

current lawsuits– Membership strategies/restrictions (China)...most on the horizon


Specific Elements of an Antitrust Compliance Program for Trade Associations


The NAMM DecreeThe NAMM Decree“First, a discussion of prices, output, or strategy may mutate into a conspiracy to restrict competition. Second, and even in the absence of an e plicit agreement on f t re cond ct an information e changeof an explicit agreement on future conduct, an information exchange may facilitate coordination among rivals that harms competition. In light of the long-recognized risk of antitrust liability, a well-counseled trade association will ensure that its activities are appropriately monitored and supervised ”monitored and supervised.”

» Claimed Conduct– Bringing together retailers and manufacturers to discuss MAP Policies and prices– NAMM sponsored the meetings– NAMM representatives “set the agenda and helped steer the discussions”

» Settlement– More rigorous antitrust compliance by NAMM– More rigorous antitrust compliance by NAMM

• Outside counsel as “antitrust compliance officer” for first 3 years• Advance review of written materials• Live training of Board of Directors annually• Effective reporting and disciplining of violations


• Required recording of specific sessions for review by antitrust compliance officer

Teachings of NAMM Consent Decreeg

» FTC requirements for National Association of Music Merchandisers (March 4 2009)Merchandisers (March 4, 2009)

– Annual antitrust training for the association’s Board

– Annual antitrust training for the association’s employees and staff

– Review and approval for all final agendas and materials prior to distribution at association meetings

Antitrust counsel or ‘deputy’ present at all association events and– Antitrust counsel or ‘deputy’ present at all association events and meetings

– Antitrust Reminder read at association meetings


(Very) Recent Litigation Involving Industry A i tiAssociations

» In re Fuel Surcharge» In re Steel Products» In re Egg Products Direct Purchasers» What are the teachings here?

– Meeting compliance and meeting records matter.(Attendance lists, agenda, minutes, handouts)

– Statistical programs and industry-reporting programs draw scrutinydraw scrutiny.

– Plaintiffs lawyers use association-press-mentions to get around Twombly.


The New Guidance from the FTC and Class Action Litigations: Antitrust ChecklistAction Litigations: Antitrust Checklist

» Antitrust Training (Board and Staff)g ( )» Antitrust Reminder» Written antitrust policy» Monitoring by counsel/deputies» Meeting records

S ifi li f t ti ti l» Specific compliance for statistical programs» Proper standard setting practices» Press releases and public statements» Press releases and public statements» Monitor the politics


ConclusionSteps for in-house counsel and executives:» Turn on radar to monitor:

– Advocacy positions and industry implementation– Voluntary and involuntary standards– Information exchange vs. industry output levels– Membership strategies/restrictions

» Keep an eye on the politics (where are the DOJ/FTC on p y p (your industry and issues?)

» Fill in the boxes on the checklist.


Antitrust Do’s and Don’tsAntitrust Do s and Don tsYOUR MOMMA’S RULES TO KEEP OTHER PEOPLE FROM GETTING YOU AND YOUR OUTFIT IN ANTITRUST TROUBLE*

1. Who’s Giving the Party? When you were 15, your Momma wouldn’t let you go to a party unless the right group sponsored it (like a church, or school, or somebody’s parents). You couldn’t just say “Momma a few couples are getting together in the woods”. Same deal here; your Momma was right. Don’t go to g y g gany meeting unless there is a clear and proper sponsor, and it is the right kind of officially-recognized body which is properly-constituted, broadly-based, and well-run. Otherwise, you may get in more trouble than you can handle.

2 “What’s Up?” Your Momma wanted to know “what kind of party is it?”2. What s Up? Your Momma wanted to know what kind of party is it? She was right; there is a difference between drinking and skating and she wanted to know what was going on. Same deal here. What is going on? If they don’t send a written agenda in advance, you really shouldn’t go. (It is not an “agenda” if all it says is “(1) old business, (2) new business, (3) other”, or

thi lik th t )anything like that.)

*David A. Bagwell, Your Momma’s Rules to Keep Other People from Getting You in A tit t T bl F i h AL


Antitrust Trouble, Fairhope, AL.

Antitrust Do’s and Don’tsAntitrust Do s and Don ts3. Chaperones. When you were 15, your Momma wouldn’t let you go unless a chaperone was going. A lawyer is kind of like a chaperone; they tend to spot any developing troublemakers and throw them out of the party If noto spot any developing troublemakers and throw them out of the party. If no lawyer is going to be there to chaperone, it is a sign the party might get too wild, and maybe you shouldn’t go.

4. Stay Out of the Bushes. Your Momma knew that if you left the party, you lik l t t i t bl Sh i ht D ’t t “ i ”were more likely to get in trouble. She was right. Don’t go to “rump sessions”

before, during or after meetings; the natural human temptation is to talk business there and your business is best discussed openly in the proper forum. It is okay to have lunch with a friend or two, but don’t let it turn into a “rump session” (hard to define, but we all know it when we see it; so see it before it is ( , ;too late).

5. No Select Groups. Remember how it hurt your feelings when some people got invited to the party but you didn’t? Same deal here. If they don’t invite the whole class don’t go Especially don’t go if they call it somethinginvite the whole class, don t go. Especially don t go if they call it something stupid like “let’s get the ‘big three’ together”. That kind of talk will just get you in trouble; don’t go.


Antitrust Do’s and Don’tsAntitrust Do s and Don ts

6. Don’t Get Taken in By Sweet Words. Your Momma told you they would talk sweet to you; don’t get taken in. She was right. It would be simple if you y ; g g p ycould spot antitrust trouble just by seeing an evil-looking guy in a cloak and silk hat and a waxed mustache who whispered “Pst! Let’s conspire!”. They don’t do that. People sometimes unknowingly fall into conspiracies, pulled in by other nice-seeming people who say “let’s get on the same wavelength”, or “let’s sort it out before the meeting” or “let’s get our story straight” If they whisper to youout before the meeting , or let s get our story straight . If they whisper to you like that, they are the Devil. Don’t be tempted. Don’t go. It can only get you in trouble. Your “story” is open and honorable and firmly-based an correct data, and your story is already “straight”. The only time you need to be on the “same wavelength” as anybody else is when you both tune into the religious channel on your separate radioson your separate radios.

7. Don’t Let Them Spike the Punch. Your Momma suspected that some boy might try to spike the punch, and she told the chaperone to keep a lookout. She was right; same deal here. Watch out that no narrow interest tries to rig the

ti th t f i l i f f it it i t t likmeeting or the system unfairly in favor of its company or its narrow interest; like a spiked punch at junior high party, it can only lead to trouble (and don’t let anybody do the minutes on company stationery; it makes it look like their company is “in charge”, which is probably unfair).


Antitrust Do’s and Don’tsAntitrust Do s and Don ts8. Appearances Count. Your Momma knew that if you slipped off to the woods from the party, people would assume the worst, even if you only held hands She was right Pay attention to how things might look to somebodyhands. She was right. Pay attention to how things might look to somebody else. Some people always assume the worst, and start a bunch of gossip. Don’t be grist for the gossip; make sure you behave and look like you are behaving. For instance, don’t sit over in the corner whispering with your competitors, even about football or movies. (At this point in your life, it won’t be a gossip who will spread the scandal; it will be some lawyer trying to make youa gossip who will spread the scandal; it will be some lawyer trying to make you look bad to a jury, so he can personally make a lot of money. Strike a blow for liberty; behave and look like you behave and keep all the lawyers poor.)

9. If the Party Turns Wild, Leave. Your Momma told you to leave if it got ild Sh i ht If th th l t ti t t t lki b twild. She was right. If the other people at your meeting start talking about or

doing bad stuff, get up and walk out. (It may be unpleasant then but it beats going to jail or getting sued.)

10. Call Your Momma if You’re Not Sure. Your Momma gave you a dime g y(or a quarter or a nickel, depending on how old you are) to call her if you needed advice or help. She was right; same deal here. If you can’t get your Momma, call your lawyer.


Documents

presents Antitrust Pitfalls for Trade Associations and …media.straffordpub.com/...risks-for-trade-associations-and-members... · presents Antitrust Pitfalls for Trade Associations