Antitrust Essentials
ANTITRUST ESSENTIALS
Copyright © 2011 WeComply, Inc. All rights reserved.
Antitrust Essentials
WELCOME
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Antitrust Essentials
INTRODUCTION
Thank you for participating in our Antitrust Essentials training
course. This course will provide an overview of antitrust law and
help you recognize and deal with "red flags" — situations that
present a risk of antitrust violations and legal liability.
We'll start with a summary of the most important laws and legal
principles. Then we'll discuss some facts and situations that
should trigger red flags in a number of different contexts.
Keep in mind that this material is provided for informational
purposes only and is not intended as legal advice. If you have
questions or need legal advice about how any of this material
applies to your job responsibilities, please direct them to your
supervisor or the Legal Department.
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Copyright © 2011 WeComply, Inc. All rights reserved.
Antitrust Essentials
OVERVIEW OF U.S. ANTITRUST LAW
Fundamental objective of antitrust laws is to protect and
promote free and fair competition in the marketplace for the
benefit of consumers
Antitrust laws prohibit conduct that reduces competition by
unfair means
U.S. antitrust laws are the most developed
•
Criminal and civil penalties are among the most severe
•
Enforcement efforts are vigorous
You should consult legal counsel to ensure compliance with all
global antitrust laws
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Antitrust Essentials
OVERVIEW OF U.S. ANTITRUST LAW (CONT’D)
Three primary federal antitrust laws:
• Sherman Act
• Clayton Act
• Federal Trade Commission Act
State and international antitrust laws
Ignorance of the law is no defense
Challenged conduct is judged by two standards:
• Some conduct is illegal per se — i.e., prohibited regardless of
effect on competition
• Most conduct is subject to rule of reason — i.e., permitted if
it enhances competition
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Antitrust Essentials
OVERVIEW OF U.S. ANTITRUST LAW (CONT’D)
Three primary federal antitrust laws:
• Sherman Act
• Clayton Act
• Federal Trade Commission Act
State and international antitrust laws
Ignorance of the law is no defense
Challenged conduct is judged by two standards:
• Some conduct is illegal per se — i.e., prohibited regardless of
effect on competition
• Most conduct is subject to rule of reason — i.e., permitted if
it enhances competition
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Antitrust Essentials
OVERVIEW OF U.S. ANTITRUST LAW (CONT’D)
Three primary federal antitrust laws:
• Sherman Act
• Clayton Act
• Federal Trade Commission Act
State and international antitrust laws
Ignorance of the law is no defense
Challenged conduct is judged by two standards:
• Some conduct is illegal per se — i.e., prohibited regardless of
effect on competition
• Most conduct is subject to rule of reason — i.e., permitted if
it enhances competition
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Antitrust Essentials
PENALTIES FOR ANTITRUST VIOLATIONS
Violation of Sherman Act is a felony
• Many foreign jurisdictions have also criminalized antitrust
violations
Penalties:
• In U.S., individuals may be imprisoned for up to 10 years and
fined up to $160 million per violation
• In U.S., companies may be fined $100 million or more
• In EU, companies may be fined up to 10% of worldwide
turnover
Private lawsuits can result in judgments for three times the
amount of damages plus attorneys' fees
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Antitrust Essentials
SPECIAL NOTE…
Current Antitrust Trends: Enforcement
The Antitrust Division of the U.S. Department of Justice
announced that it will continue to emphasize prison terms for
individuals who participate in price-fixing conspiracies. Offenders
are being sent to prison with increasing frequency and for longer
periods of time. For example, in 2007 the Division obtained
criminal sentences for 34 individuals totaling a record 31,391
days of prison time — more than twice the number of prison
days imposed in any previous year. During 2007 the average
sentence for jailed defendants charged with antitrust violations
reached an all-time high of 31 months.
Criminal and corporate fines are also increasing, with over half a
billion dollars in fines imposed in each of the last four years. The
Division has also increased the number of foreign nationals
prosecuted and sent to jail in connection with cartel
investigations.
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Antitrust Essentials
RECOGNIZING "RED FLAGS"
It is important to learn how to recognize and deal with antitrust
issues in the real world
Antitrust issues typically arise in these contexts:
•
Relationships with competitors
•
Relationships with customers
•
Mergers and acquisitions
•
Monopolistic behavior
•
Discrimination in pricing and promotions
•
Exemptions from antitrust laws
•
Special industries
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Antitrust Essentials
RELATIONSHIPS WITH COMPETITORS
Section 1 of Sherman Act prohibits agreement between
competitors that unreasonably restrains competition
Each competitor must make its own decisions about price,
output, customers and areas of activity
An agreement among competitors may take any form — it does
not have to be formal or written
•
Unlawful conspiracy may be inferred from conduct
•
Avoid conduct that could give rise to an inference of an
agreement
•
Avoid contacts that could be seen as invitation to collude
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Antitrust Essentials
RELATIONSHIPS WITH COMPETITORS (CONT’D)
Section 1 of Sherman Act prohibits agreement between
competitors that unreasonably restrains competition
Each competitor must make its own decisions about price,
output, customers and areas of activity
An agreement among competitors may take any form — it does
not have to be formal or written
•
Unlawful conspiracy may be inferred from conduct
•
Avoid conduct that could give rise to an inference of an
agreement
•
Avoid contacts that could be seen as invitation to collude
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Antitrust Essentials
RELATIONSHIPS WITH COMPETITORS (CONT’D)
Red Flag #1 — Price-Fixing
Agreement between competitors to set price is the most serious
type of anti-competitive conduct
•
Includes agreement to set discounts, freight charges or
payment terms
•
Includes bid-rigging
•
Price-fixing agreements are "per se" illegal
•
Never discuss prices, price levels, price trends or pricing
policies with competitors
•
Do not exchange past, present or future price or cost
information with competitors
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Antitrust Essentials
RELATIONSHIPS WITH COMPETITORS (CONT’D)
Red Flag #2 — Allocating Markets or Customers
•
Agreement to allocate customers, territories or business
opportunities is always illegal
•
Competitors cannot agree that one will not sell in certain
areas or to certain customers
Competitors cannot agree that one will not bid on a certain
contract or not compete for customers
Red Flag #3 — Boycotts
•
Agreement not to do business with a supplier or customer, or
to do business only with certain suppliers or customers, may
be illegal boycott
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Antitrust Essentials
RELATIONSHIPS WITH COMPETITORS (CONT’D)
Red Flag #2 — Allocating Markets or Customers
•
Agreement to allocate customers, territories or business
opportunities is always illegal
•
Competitors cannot agree that one will not sell in certain
areas or to certain customers
Competitors cannot agree that one will not bid on a certain
contract or not compete for customers
Red Flag #3 — Boycotts
•
Agreement not to do business with a supplier or customer, or
to do business only with certain suppliers or customers, may
be illegal boycott
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Antitrust Essentials
RELATIONSHIPS WITH COMPETITORS (CONT’D)
Red Flag #4 — Other Improper Competitor Contacts
Never discuss prices, terms, distribution, customers, territories
or profit margins with competitors
•
Applies to informal meetings/discussions, trade-association
meetings, trade shows
If these subjects are discussed in your presence —
•
Ask those involved in the discussion to stop
•
Announce that you don't want to be part of the discussion
•
Request that minutes reflect your departure
•
Report incident to the Legal Department as soon as possible
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Antitrust Essentials
RELATIONSHIPS WITH CUSTOMERS
Antitrust laws prohibit certain agreements between companies
at different levels of distribution chain
Our commercial decisions must be unilateral — there can be no
discussions or agreements with a customer, competitor or
supplier
•
We may decide which customers and suppliers we want to
deal with as long as we make our decisions independently
•
We may adopt a business strategy designed to protect our
self-interest
•
Legal Department should review business arrangements that
raise any red flags
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Antitrust Essentials
POP QUIZ!
A pricing agreement between a supplier and a customer is always
("per se") illegal.
A. True.
B.
False.
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Antitrust Essentials
RELATIONSHIPS WITH CUSTOMERS (CONT’D)
Red Flag #5 — Price-Related Restrictions
•
Resale-price-maintenance agreements between supplier and
customers set prices at which the customers will resell
supplier's products or services
•
Assessed under rule of reason
•
Seller must provide a reasonable, pro-competitive
justification for price restriction
Red Flag #6 — Geographic or Customer Restrictions
•
Legality of agreement between manufacturer and distributor
that distributor may sell only in certain territories or to
certain types of customers depends on facts and
circumstances
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Antitrust Essentials
RELATIONSHIPS WITH CUSTOMERS (CONT’D)
Red Flag #5 — Price-Related Restrictions
•
Resale-price-maintenance agreements between supplier and
customers set prices at which the customers will resell
supplier's products or services
•
Assessed under rule of reason
•
Seller must provide a reasonable, pro-competitive
justification for price restriction
Red Flag #6 — Geographic or Customer Restrictions
•
Legality of agreement between manufacturer and distributor
that distributor may sell only in certain territories or to
certain types of customers depends on facts and
circumstances
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Antitrust Essentials
RELATIONSHIPS WITH CUSTOMERS (CONT’D)
Red Flag #5 — Price-Related Restrictions
•
Resale-price-maintenance agreements between supplier and
customers set prices at which the customers will resell
supplier's products or services
•
Assessed under rule of reason
•
Seller must provide a reasonable, pro-competitive
justification for price restriction
Red Flag #6 — Geographic or Customer Restrictions
•
Legality of agreement between manufacturer and distributor
that distributor may sell only in certain territories or to
certain types of customers depends on facts and
circumstances
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Antitrust Essentials
RELATIONSHIPS WITH CUSTOMERS (CONT’D)
Red Flag #7 — Exclusive Dealing
•
Agreements that require customer to buy all or some of its
requirements from one supplier raise antitrust concerns
Red Flag #8 — Tying
•
Agreements in which a supplier offers to sell a customer a
desirable product only if customer agrees to buy less
desirable product are unlawful under certain circumstances
•
Legality depends on analysis of supplier's market power in
desirable product
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Antitrust Essentials
RELATIONSHIPS WITH CUSTOMERS (CONT’D)
Red Flag #9 — Reciprocal Dealing
•
Agreement to buy a supplier's products on the condition that
supplier buys your products is reciprocal dealing
•
Avoid appearance of an agreement that links your purchases
from suppliers to their purchases from you
Red Flag #10 — Dual Distribution
•
Manufacturer that uses its own distribution channels and
independent distributors must assure that independent
distributors are treated fairly
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Antitrust Essentials
MERGERS AND ACQUISITIONS
Clayton Act prohibits mergers or acquisitions that could
substantially lessen competition or create a monopoly
Antitrust issues may arise in acquisition, merger or joint venture
involving stock or assets of a competitor, potential competitor,
or substantial customer or supplier
Red Flag #11 — Pre-Merger Reporting
•
Parties must submit documents to government agencies to
evaluate competitive effects of transaction
•
Documents should be written with regard to antitrust
significance of their contents
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Antitrust Essentials
MERGERS AND ACQUISITIONS (CONT’D)
Clayton Act prohibits mergers or acquisitions that could
substantially lessen competition or create a monopoly
Antitrust issues may arise in acquisition, merger or joint venture
involving stock or assets of a competitor, potential competitor,
or substantial customer or supplier
Red Flag #11 — Pre-Merger Reporting
•
Parties must submit documents to government agencies to
evaluate competitive effects of transaction
•
Documents should be written with regard to antitrust
significance of their contents
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Antitrust Essentials
POP QUIZ!
Companies considering a merger are allowed to share
information with each other so that they can accurately evaluate
their prospective business opportunity.
A. True.
B.
False.
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Antitrust Essentials
MERGERS AND ACQUISITIONS (CONT’D)
Red Flag #12 — Pre-Closing Information-Sharing
•
Until the closing of a merger or acquisition, companies
involved must remain separate
•
Coordination of pricing, purchasing, etc., is only permitted
once transaction is concluded
•
Negotiations between competitors are especially tricky
•
Parties must limit disclosure and exchange of non-public,
competitively sensitive information
•
Disclosures should be on "need-to-know" basis only and
protected by written confidentiality agreement
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Antitrust Essentials
MONOPOLISTIC BEHAVIOR
Sherman Act prohibits monopolization:
•
Unreasonable business behavior designed to achieve or
maintain monopoly power
•
Attempts and conspiracies to monopolize
Applies where a company has power to control prices, drive
competitors out or prevent them from entering market
•
Usual indicator of monopoly power is market share over 60%
•
Can occur in narrow geographic areas and small segments of
broad market
•
Requires deliberateness — conduct or behavior that shows
monopolistic intent
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Antitrust Essentials
IN THE NEWS…
Mill Logs Predatory Practices
Supreme Court Clarifies Predatory Pricing/Bidding Claims
An Oregon sawmill accused a competitor of engaging in
predatory practices in violation of the Sherman Act by
bidding up the price of sawlogs to prevent the plaintiff
from being profitable. In ruling in favor of the
competitor, the U.S. Supreme Court held that the test
should be the same for predatory pricing and predatory
billing claims — that is, the plaintiff must show that the
defendant had considerable market power and wielded
it to drive its competitors out of the market. The Court
reversed an $80 million jury verdict for the plaintiff,
finding that there might have been legitimate reasons
for the defendant's bids, such as increased consumer
demand and a hedge against future price increases.
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Antitrust Essentials
MONOPOLISTIC BEHAVIOR (CONT’D)
Red Flag #13 — Predatory Pricing
•
Company sells its products below cost with intent to severely
damage competitors
•
Most problematic where company setting prices has
significant market power in relevant product market
Red Flag #14 — Refusals To Deal
•
Refusal to deal with customers/suppliers by company with
monopoly power violates Sherman Act if company had no
legitimate business purpose
•
Dominant firm that controls an essential facility may have
duty to share facility with competitors on non-discriminatory
basis
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Antitrust Essentials
PRICE DISCRIMINATION
Robinson-Patman Act prohibits a seller from discriminating
between customers on price, terms or promotional services if it
substantially lessens competition or creates a monopoly
•
It is illegal to charge different prices for similar products to
competing customers at the same time if price difference
lessens competition
Intent of the Act is to prevent large buyers from obtaining
unfairly low prices or extra services to detriment of smaller
buyers
Seller can defend price differentials based on cost justification,
changing market conditions or the need to meet competition
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Antitrust Essentials
PRICE DISCRIMINATION (CONT’D)
Robinson-Patman Act prohibits a seller from discriminating
between customers on price, terms or promotional services if it
substantially lessens competition or creates a monopoly
•
It is illegal to charge different prices for similar products to
competing customers at the same time if price difference
lessens competition
Intent of the Act is to prevent large buyers from obtaining
unfairly low prices or extra services to detriment of smaller
buyers
Seller can defend price differentials based on cost justification,
changing market conditions or the need to meet competition
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Antitrust Essentials
POP QUIZ!
Which of the following is not a type of price discrimination
addressed by U.S. antitrust laws?
A. A supplier sells widgets to stores owned by people who are
over 40 for $100 each but charges $200 to stores owned by
people under 40.
B.
A supplier sells widgets to "big-box" chain stores at $100
each but charges $200 to small, independent stores.
C.
A supplier sells widgets to all its customers at $150 each but
includes promotional materials free of charge for orders by
its largest customers.
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Antitrust Essentials
PRICE DISCRIMINATION (CONT’D)
Red Flag #15 — Meeting Competition
"Meeting competition" defense permits seller to charge lower
price to buyer if done in good faith to meet (but not beat) equally
low price offered by seller's competitor
•
Seller must make good-faith effort to verify lower price
before giving price cut
•
Seller should not call competitor directly to verify lower price
Red Flag #16 — Promotional Services
Company that offers promotional services or allowances must
make offers available to all competing customers on
proportionally equal terms
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Antitrust Essentials
EXEMPTIONS FROM THE ANTITRUST LAWS
Red Flag #17 — Lobbying Activities
Company can engage in activities seeking governmental or
judicial action, even if activities are anti-competitive
Action aimed at a non-governmental body is not immune from
antitrust laws
Red Flag #18 — Labor-Related Activities
Statutory labor exemption enables workers to organize to
eliminate competition among them and to pursue legitimate
labor interests
Non-statutory exemption applies to agreements that further
objectives of national labor policy and do not have unwarranted
anti-competitive impact
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Antitrust Essentials
EXEMPTIONS FROM THE ANTITRUST LAWS (CONT’D)
Red Flag #19 — State Action
State governments may show that a regulatory scheme precludes
antitrust liability
Challenged conduct must be clearly expressed as state policy and
actively supervised by state
Red Flag #20 — Regulated Industries
Some industries are so pervasively regulated that they are
exempt from U.S. antitrust laws
These include agricultural cooperatives, sports broadcasting, rail
transportation and ocean shipping
Consult Legal Department for questions about exemptions
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Antitrust Essentials
SPECIAL INDUSTRIES
Insurance
"Business of insurance" is exempt from antitrust law, as long as
conduct is subject to state regulation and is not agreement to
boycott, coerce or intimidate
Healthcare
U.S. enforcement agencies have issued guidance on nine types of
allowed joint activity
Guidance provides safety zone within which activity is unlikely to
raise competitive concerns
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Antitrust Essentials
OTHER CONTEXTS
Government Contracting
Companies bidding on public contracts must know rules
prohibiting bid-rigging, market allocation and predatory pricing
Government may permit a teaming agreement between
competitors for purpose of keeping costs down
Foreign Trade
Conduct by foreign companies and individuals that has
substantial effect on U.S. imports or exports may be subject to
antitrust law
U.S. companies doing business internationally may be subject to
antitrust laws of other countries or EU
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Antitrust Essentials
FINAL QUIZ
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Antitrust Essentials
ABOUT WECOMPLY
WeComply is a leading provider of customized ethics and
compliance training solutions. We are committed to providing
the best-of-breed training content, technology and customer
service.
 Specializing in ethics and compliance training since 1999
 60+ ethics and compliance training courses in 42 languages
 Content partners include the Association of Corporate
Counsel (ACC), Proskauer Rose and White & Case
 500+ clients of all sizes and in all industries
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Antitrust Essentials
COURSE-DELIVERY OPTIONS
WeComply offers training courses in multiple delivery formats to
reach all employees -- not just those with computers:
 Online – available 24/7 from any computer
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 Offline options when Internet access is unavailable:
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Antitrust Essentials
ONLINE TRAINING BENEFITS
While classroom training has certain advantages, it can be
challenging to implement in large and/or geographically
dispersed companies. Consider these advantages of online
training:
 Better Attendance
 Higher Completion Rates
 Less Impact on Productivity
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 Easy Access to Courses
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Blended Benefits
Get the best of both
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classroom training
where feasible and
online training
elsewhere – all centrally
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reporting.