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Top Components of Effective Antitrust Corporate Compliance Programs, Part 1

With DOJ’s Antitrust Division and the FTC ramping up antitrust enforcement, it is critical for companies to take a hard look at their compliance programs and update them on a regular basis to avoid potential antitrust violations and discover antitrust malfeasance early on so a company can have the option of self-reporting and applying for leniency under DOJ’s leniency program. The United States Sentencing Guidelines provide guidance to companies in the organization of their corporate antitrust compliance programs; Guidelines considerations include establishing standards and procedures to prevent and detect criminal conduct and monitoring, auditing and periodically evaluating compliance with the program, including providing anonymous or confidential means for reporting potential breaches.  In addition to these threshold requirements, it is important that any antitrust compliance program provide guidance in a number of areas that present potential pitfalls.  Today, we discuss guidance on communications with competitors and dealing with customers and suppliers.  Next week we’ll add additional considerations for guidance concerning monopolization and dominance and price discrimination.

Communications with Competitors

Any agreements among competitors that reduce competition on price, quality, service, or customer allocation or any agreements among competitors not to do business with targeted individuals or businesses (i.e., a group boycott) may be a violation of the antitrust laws.  Antitrust scrutiny may occur when competitors discuss present or future prices, terms or conditions of sale, pricing policies, discounts, promotions, identity of customers, bids, allocation of customers or sales areas, costs, and R&D plans.  The FTC has provided useful guidance on these issues.  It is critical for in-house counsel to provide employees with very clear “Dos and Don’ts” when communicating with competitors and to establish a clear reporting line for employees to follow if they are approached by a competitor who tries to engage in improper discussions.

The structure of the industry and the company’s market share in that industry are factors in assessing potential antitrust risks.  Regulators and courts are more likely to view communications with competitors critically when the communications take place between competitors with high market concentration, there are barriers to entry, the company’s products are fungible and demand is relatively inelastic.  See Todd v. Exxon Corp., 275 F.3d 191, 207-211 (2d Cir. 2001).  Companies that gather information about competitors should advise their employees to do so from publicly available sources and not to obtain such information directly from competitors (or conversely, to convey that information directly to competitors).  Although companies can obtain intelligence, including pricing information about competitors, from customers or third parties, it is important that any exchange of information is done in a manner that does not suggest that the customer is the “hub” of an antitrust conspiracy.   The same is true for communications between banks: for example, using a broker to convey or receive pricing information – even if not directly communicating with a competitor bank – may still be perceived by antitrust authorities as indicative of collusive conduct.

Trade associations are generally considered procompetitive.  Nonetheless, it is illegal to use a trade association to control or suggest prices or to exchange information that has the effect of creating more uniform prices.  In general, historical data is likely to pose less of an antitrust concern than the sharing current or future price information.  Companies should consult the DOJ’s business review letters and the FTC guidelines concerning information exchanges and dealing with competitors, and develop a compliance program that addresses the nuances of which trade association joint activities are permissible and which might implicate antitrust scrutiny. For example, in In Re: Text Messaging Antitrust Litigation, the Seventh Circuit affirmed the district court’s decision that allegations that a mixture of parallel behaviors, industry structure, and industry practices facilitated collusion between four defendants that sold 90 percent of U.S. text messaging services were sufficient to allege an antitrust violation.  The Seventh Circuit noted that “the allegation in the complaint that the defendants belonged to a trade association and exchanged price information directly at association meetings . . . identifies a practice, not illegal in itself, that facilitates price fixing that would be difficult for the authorities to detect.”  Explaining that “[c]ircumstantial evidence can establish an antitrust conspiracy,” the Seventh Circuit concluded that the allegations concerning trade association activities and parallel conduct were sufficient for the litigation to continue.

Dealing with Customers and Suppliers

Exclusive dealing arrangements between a supplier and a customer are generally considered competitive and do not necessarily amount to a violation of the Sherman Act.  Restraints in the supply chain are tested for reasonableness by analyzing the market and balancing any harmful competitive effects against any benefits.  That said, it is important for a corporate compliance program to identify potential antitrust concerns in this area (e.g., supplier’s market share, alternative distribution avenues for supplier’s competitors, percentage of relevant market foreclosed to competing suppliers, duration of arrangement, etc.), and encourage employees to identify at the outset procompetitive reasons for any exclusive dealing arrangement.  Conversely, as was illustrated by Aspen Skiing Co. v. Aspen Highlands Skiing Corp., a business can usually terminate or refuse to deal with a customer without implicating antitrust concerns as long as a valid, procompetitive business justification is given.  Suppliers may generally offer customers a package deal that includes arrangements such as “tying” (conditioning a purchase of one product or service on the purchase of a second product or service) or “bundling” (offering at a single price two or more goods or services that can be sold separately), but such arrangements may violate antitrust laws where the seller has significant market power.  This principle was illustrated in Eastman Kodak Co. v. Image Technical Services, in which the plaintiffs alleged that Kodak’s policy of selling service parts only to customers that obtained service from Kodak (and corresponding refusal to sell those parts to independent service organizations that competed with Kodak) was a violation of the antitrust laws; one key factor in the Supreme Court’s decision to allow the case to proceed was that Kodak held a significant market share in the sale of service parts and so independent service organizations had difficulty obtaining them from other sources.  Since the law on bundling and tying is evolving, it is important for compliance programs to be updated regularly to reflect the latest developments.

Part 2 of this post will be available on August 14.