ANTITRUST COMPLIANCE
Introduction
Compliance Guidelines
Illegal Agreements with Competitors
Other Antitrust Rules Applicable to Your Company
Conclusion
AMT – The Association For Manufacturing Technology (the “Association”) believes that vigorous, fair competition is essential to the maintenance of the free enterprise system. In addition, strict compliance with federal and state antitrust laws clearly is in every member’s best interests and is essential to your Association’s long-term vitality. The Antitrust Compliance Guide which follows was written for member companies and their employees participating in AMT business.

 

 

This Antitrust Compliance Guide is part of the Association’s ongoing antitrust compliance program. It attempts, in simple terms, to identify and explain the rules and guidelines that govern each member’s participation in all Association activities. The Guide will not make you an antitrust expert; it is not designed to be a detailed antitrust treatise or to provide you with the means of acting as your own lawyer.

Because the export trade of Association members is no longer subject to special antitrust protection under an Export Trading Company Certificate of Review, you should assume that the antitrust prohibitions summarized in this Guide apply to all of your company’s international transactions as well.

Trade associations have long been recognized as serving a valuable role in promoting the industrial development and economic welfare of our country. As a rule, traditional trade association activities are pro-competitive and lawful. However, if not properly conducted by staff and by those member representatives in attendance, trade association meetings and other activities can give rise to serious antitrust problems. 

Among other things, trade association meetings sometimes provide occasions for competitors to meet in informal sessions outside of the scheduled program. In fact, one of the largest price-fixing cases in history, involving electrical equipment manufacturers, began some time in the mid-1940s when manufacturers meeting at the annual convention of their association agreed to fix prices on equipment. By 1960, 29 corporations and 45 executives had been indicted; all were fined and some of the executives were sent to jail. Moreover, numerous private suits were filed and claimants received approximately $450 million in damages, or billions of dollars in today’s inflation-adjusted dollars.

Continuing vigilance to the Association’s antitrust compliance obligations is obviously in everyone’s interest, as the costs of antitrust violations are severe and, often, irreparable. Substantial criminal fines and jail terms up to10 years can be imposed for especially serious antitrust violations. Conspiring to fix prices, for example, is a felony that can result in jail terms and $1 million fines for individuals and up to $100 million for their corporate employers. Even larger monetary fines are possible under general criminal fines legislation, allowing antitrust courts to levy fines equal to twice the victim’s monetary loss or twice the violator’s gain.

These potential antitrust penalties are not theoretical. Numerous antitrust decrees involving trade association activities are still outstanding, and new cases are brought by enforcement agencies and private plaintiffs every year. Over the years, many companies, large and small, as well as innumerable individual company executives, have been subjected to serious civil and criminal antitrust penalties. In addition to fines and jail terms, which the Department of Justice views as the best available means to deter future anticompetitive conduct, antitrust violations also can result in large treble damage awards to private claimants injured by antitrust violations, injunctions limiting your future business activities, and possible loss of the right to do business in certain states.

Even where an antitrust violation is never actually established, the legal expense and administrative disruption associated with successfully defending an antitrust investigation typically are so great that trade associations and their members usually are strongly disinclined to assume any serious antitrust risk.

There is no question but that the antitrust laws potentially are among the most important laws affecting member companies and the Association. It is thus essential that all Association members have a basic understanding of these laws and the potential gravity of violating them. Given the expense of antitrust investigations and litigation, it is also important that every individual involved in Association activities both comply with the law and behave in a manner that does not suggest that the law is being violated.

ANTITRUST COMPLIANCE GUIDE

COMPLIANCE GUIDELINES

It is not possible to distill all of the antitrust laws potentially applicable to trade association activities into a few comprehensive and easily understood rules of conduct. However, the following antitrust guidelines are designed to minimize the risk of a serious antitrust violation by serving as a ready reference. (In later sections, the Guide also discusses other antitrust danger areas where the rules may not be so clear and legal advice therefore should be promptly sought.)

In connection with any Association meeting or other activity, never discuss or agree with a competitor concerning any of the following subjects:

·        Prices, future prices, pricing or pricing policies; buyers and sellers alike have a legal right to buy and sell in a market untainted by anticompetitive agreements, including anticompetitive informal, unwritten understandings;
·        Specific terms or conditions of doing business with customers, such as specific credit terms and credit availability, discounts, rebates, warranty terms, return policies, and so forth (these subjects are viewed by the antitrust authorities as directly or indirectly affecting prices);
·        Profits or profit margins;
·        Specific market shares of any competitor;
·        The nature of a bid, one’s intent to bid or not to bid, for particular business;
·        A willingness to serve only certain customers or territories, or to build only certain types of products;
·        An intention or willingness not to serve a particular customer, to purchase only from a particular supplier, or to restrict existing or future cooperation with another competitor.
·        Negative, derogatory or untruthful remarks about any supplier, distributor or customer.

ILLEGAL AGREEMENTS WITH COMPETITORS

While many agreements with a competitor may be perfectly legal, such as joint ventures or other collaborative activity that expands (rather than restricts) output, it is illegal to enter into an agreement or understanding (no matter how informal) with a competitor concerning a course of conduct that unreasonably restrains trade. No type of activity is more likely to conflict with the antitrust laws than agreements among competitors that are intended to reduce output and raise prices.

An illegal agreement does not require that there be a written contract or handshake. Responding to pressure from your competitors or general discussions about the desirability of taking certain actions (e.g., raising prices) or achieving certain goals (e.g., increasing margins) can be sufficient, because an illegal agreement may be inferred from your actions as well as from other circumstantial evidence. The antitrust enforcement agencies, or a jury sitting in an antitrust case, with the advantage of hindsight, can combine apparently isolated facts into a chain of circumstantial evidence from which an agreement or conspiracy can be inferred. For this reason, you should avoid actions and discussions which may suggest that an illegal agreement or informal understanding exists, even if an agreement does not exist in fact.

In the normal course of trade association meetings or trade shows, competitors often meet together in informal gatherings outside of regular meetings, perhaps in a hotel restaurant or bar. In other industries, these so-called agenda-less “rump” sessions have sometimes led to the discussion of prices, allocation of markets or customers, or other matters of acute competitive significance that no one would feel comfortable discussing at a regular meeting. 

Don’t be fooled! It does not matter how informal the discussion; if it is intended or has the effect of reducing competition, serious repercussions are possible. You cannot defend a conspiracy charge on the ground that someone else started the conversation, or even that you said nothing. And, it is a grave mistake to ever assume that an anticompetitive agreement can remain “secret” and undisclosed in the face of a governmental inquiry. Consequently, if you find yourself at such a gathering when the discussion turns to competitively sensitive subjects – especially pricing issues – you should explain your concerns to the group and try to terminate the discussion. If the discussion does not cease immediately, leave the gathering and report the episode to the appropriate Association staff executive. In doing so, you will be doing yourself, your company and everyone else a real service.

The following briefly discusses certain general types of illegal agreements that are particularly relevant to the proper operation of any trade association.

A. Price-Fixing.
Competitors may not agree to raise, lower, or maintain prices, establish a common pricing system, or otherwise “fix” prices, including other terms and conditions of sale (e.g., warranty terms, credit terms, delivery terms, product availability, discounts, service charges, etc.) A violation also may occur even if the parties do not agree on specific prices or agree to eliminate discounts that may arguably be in violation of federal price discrimination statutes. Competitors may also not agree to restrict production or sales (including related services), because, given the law of supply and demand, any such action necessarily will have the anticompetitive effect of raising or maintaining prices, or diminishing the availability of related services.

Such collaborative actions undertaken to influence the price at which goods or services are sold are known generally as price-fixing. Price-fixing is per se illegal, which means that the conduct is considered so inherently anticompetitive that the law allows no legal justification or defense for it and no actual adverse impact on competition, need be shown. Such actions typically are condemned outright, and, as noted previously, those responsible can suffer stiff jail terms and fines.

It is important to realize as well that the absolute illegality of price-fixing agreements does not depend upon any showing that competition, a competitor, supplier, or customer has actually suffered or, even, that the price-fixing conspiracy was successfully implemented. Mere suggestions that prices be raised, and even the simple exchange of information regarding specific prices, pricing intentions or price-related terms and conditions, can lead to immediate antitrust investigations, governmental lawsuits and embarrassing and disruptive consent decrees.

Such was the fate, for example, of a top airline industry executive some years ago who, in a telephone call to the chairman of his arch-competitor, suggested that both simultaneously raise airfares at a particular airport. The rival taped the conversation, refused the proposal, and then turned the tape over to the Justice Department; the aftermath, at best, was an acute and costly embarrassment. Similarly, the Federal Trade Commission once investigated a major home appliance firm when one of its top executives was alleged to have made a “public, unilateral and unaccepted ‘invitation to collude’ to other members of the industry at a trade association gathering. Whether or not such an investigation ends with a formal decree, the company will nonetheless have paid a substantial price for its executive’s alleged transgression.

B. Refusals to Deal.
It has been a longstanding principle of antitrust law that a firm (other than a monopolist) may unilaterally choose to deal or not to deal with those of its choosing. The legal rule is different, however, where a refusal to deal with a customer, supplier or other competitor results from a joint agreement that is designed to harm competition.

While many exclusive dealing agreements are undertaken to enhance competition and are therefore perfectly legal, it can be a per se violation of the antitrust laws for two or more competitors to reach an agreement or understanding not to deal with a particular supplier, distributor, user or competitor. Even where per se condemnation of this sort of boycott is avoided, such joint conduct may still be found to violate the antitrust laws after a more extensive inquiry under the so-called Rule-Of-Reason into its asserted justifications.

Joint refusals to deal with price-cutters, poor credit risks or other suppliers, distributors or customers that are simply viewed as unethical are illegal and can lead to expensive investigations and onerous antitrust damage liability. A similar problem arises in the case of a joint refusal to sell to a distributor or customer unless it ceases doing business with a third supplier. While this may well seem surprising, a group boycott motivated solely by a desire to maintain business ethics generally is still illegal. No firm must deal with an unscrupulous supplier or customer; its decision, however, must be a unilateral one.

Like price-fixing, agreements to boycott may be unwritten and may be proved by circumstantial evidence. For this reason, it is especially important that there be no negative discussions at Association meetings about specific suppliers, distributors or customers. For example, if a distributor were terminated by several manufacturers in the wake of discussions at an Association meeting, that distributor likely would claim (in any ensuing litigation or complaint to governmental authorities) that the discussions demonstrated an actionable boycott agreement.

C. Dividing Markets.
Competitors generally may not agree as to the geographic markets in which each will or will not sell, customers or classes of customers to be served, or products to be offered. Such agreements typically are condemned as per se illegal and frequently are prosecuted criminally. Market allocation schemes may take a number of different forms, including bid rotations, volume quotas, or complete abstention from doing business with certain customers or in certain areas.

Even simple comments by one competitor to another, such as “if you go after my best customer, I’ll go after yours” or “if you build that machine tool line, we both will lose in the end” can be perilous, if it later appears that such comments led to a tacit understanding limiting future competition. At the same time, there may be nothing illegal when one competitor directly responds to increased competition from another with increased efforts to win away customers or to expand product offerings.

While other types of joint activities may be permissible, they should be checked first with legal counsel. For example, the reasonableness of a joint venture must be tested on a case-by-case basis. Although joint ventures are usually formed for legitimate business reasons (ex. sharing large and unusual risks or taking advantage of complementary skills or economies of scale), they may raise antitrust problems if they unduly suppress or restrict competition. Similarly, joint activities of competitors to present views or recommendations to governmental bodies, including the courts, are exempt from the antitrust laws as long as their efforts are good faith attempts to influence government action and not sham attempts to coerce, intimidate or impede a competitor’s access to the same governmental entities. Proposals to make joint presentations to the government should first be reviewed by legal counsel, if the purpose of such a presentation is to restrict competition.

OTHER ANTITRUST RULES APPLICABLE TO YOUR COMPANY

There are many other significant antitrust rules governing a member’s relations with its customers, distributors, and suppliers, monopolization and attempts to monopolize a market, exclusive dealing arrangements, resale price maintenance, the extent to which different prices may be charged different customers for the same product, and mergers, acquisitions and joint ventures involving competitors. These antitrust issues are unlikely to arise in the context of the Association’s activities and, accordingly, they will not be addressed here. To the extent that any such antitrust issues arise in the course of a member’s business dealings outside of the Association, serious consideration ought to be given to consulting with competent antitrust counsel:

CONCLUSION

The foregoing discussion, as noted earlier, is not intended to be an exhaustive or concise treatise on all the types of conduct prohibited by the antitrust laws. No such guide is possible, in large part because the legal standards employed by the antitrust laws are typically vague; terms such as “unreasonable restraints,” “relevant market”, and “substantially reduce competition” cannot be resolved without a thorough understanding of the surrounding circumstances of particular firms, markets and business conduct. What may be legal for one firm may be illegal for another. 

If you have any doubt as to the legality of a proposed discussion or activity involving your Association, you should bring it to the attention of the appropriate staff executive at once. There may be no antitrust problem at all, but, given the severity of the legal risks involved, it pays to make certain.

 


Introduction: