Transcript Robinson-Patman Act

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
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Basic Rules for Antitrust Compliance
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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.
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Sherman Act - Section 1
• Forbids Contracts, Combinations or
Conspiracies in Restraint of Trade.
• Violation Is a Felony.
• Unilateral Action = Legal
• Same Concerted Action = Illegal
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Per Se Antitrust Violations
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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
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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
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“Rule Of Reason” Antitrust Issues
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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
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Sherman Act - Section 2
Forbids Monopolizing
or Conspiring or
Attempting to
Monopolize.
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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
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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”
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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”
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Robinson-Patman Act
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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
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International Transactions
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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
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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
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Association Problem Areas
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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
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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
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Information Exchanges
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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
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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.
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Membership Criteria
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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.
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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
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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
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How to Adopt Standards
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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
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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.
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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)
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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.
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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).
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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)
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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.
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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.
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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
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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.
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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.
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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.
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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
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Mergers
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Hart Scott Rodino -- 30 Days
FTC or DOJ – “Second Request”
“Item 4(c) and 4(d)” Documents
No Bar to Private Lawsuits
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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
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Civil Actions
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Treble Damages
Plus Attorneys Fees
Tremendous Costs
And Diversion of Attention
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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
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DOJ Amnesty Program
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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
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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
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Guide to Document Preparation
• What is a document?
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Includes draft documents,
letters, emails, attendance notes,
meeting transcripts and diary
entries
• Rules for document creation
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Avoid Sensational or Suggestive
Language
Write positively
Focus on facts
Know when to get advice
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Words to Avoid
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Do Not Copy
Destroy After
Reading
Annihilate
Off-the-record
Dominate
Out Of The Market
Leverage
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Hurt
Control
Eradicate
Preempt
Secret Agreement
Kill
Break Down
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U.S. Trade Sanctions
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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.
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U.S. Trade Sanctions
Target Nations Include
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Afghanistan
Angola
Burma
Cuba*
Iran*
Iraq*
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Comprehensive Trade embargos currently in place
against these nations and others
Liberia
Libya*
North Korea*
Sierra Leone
Sudan*
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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.
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U.S. Anti-Boycott Legislation
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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.
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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.
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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.
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Questions
Robert A. McTamaney
(212) 238-8711
[email protected]
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