Antitrust Compliance January 2015 Robert A. McTamaney 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® Sherman Act - Section 1 • Forbids Contracts, Combinations or Conspiracies in Restraint of Trade. • Violation Is a Felony. • Unilateral Action = Legal • Same Concerted Action = Illegal CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® “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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® Sherman Act - Section 2 Forbids Monopolizing or Conspiring or Attempting to Monopolize. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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” CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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” CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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) CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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). CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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) CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® Mergers • • • • Hart Scott Rodino -- 30 Days FTC or DOJ – “Second Request” “Item 4(c) and 4(d)” Documents No Bar to Private Lawsuits CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® Civil Actions • • • • Treble Damages Plus Attorneys Fees Tremendous Costs And Diversion of Attention CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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 CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® U.S. Trade Sanctions Target Nations Include • • • • • • Afghanistan Angola Burma Cuba* Iran* Iraq* • • • • • * Comprehensive Trade embargos currently in place against these nations and others Liberia Libya* North Korea* Sierra Leone Sudan* CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® U.S. Trade Sanctions 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® 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. CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business® Questions Robert A. McTamaney (212) 238-8711 mctamaney@clm.com CARTER, LEDYARD & MILBURN www.clm.com Partners for Your Business®