“How to Avoid Antitrust Violations”

Business owners inevitably come in contact with their competitors — sometimes on issues that concern them both as entrepreneurs or within their industry through trade associations. While there are ways in which competitors can work together, these cannot in any way appear to, or actually, affect competitive pricing or distribution of business. People who in any way work with a competitor to stifle free trade or control prices will find themselves and their companies liable for fines and imprisonment. Knowing what is allowable under the law can ensure that all contact remains legal and that no gathering gives the appearance of an illegal activity.

In this Quick-Read you will find:

• The key laws that regulate antitrust.
• How to avoid the appearance of an antitrust violation.

SOLUTION [top]

Some contact with competitors will always occur and is acceptable because entrepreneurs often have similar concerns as business owners and participants in specific industries. But those contacts cannot affect how the companies do business, to whom they sell their products and services, and at what price they sell those goods. Business owners must be certain they understand the laws that govern relationships with competitors — which kinds of contact and activities are appropriate and which are illegal.

Three key federal laws regulate antitrust activities:

1. The Sherman Act. This is the basic antitrust law, which states that any contract, written or implied, that acts to restrain trade may be a criminal act. This includes any agreement or understanding between competitors about which customers to serve, which prices to charge and other elements that affect the customer’s ability to receive the best product at the lowest cost. It also makes illegal any attempt to monopolize trade. These violations require only one perpetrator, who has the ability and intent to monopolize.

2. The Clayton Act. This is a civil statute spelling out injunctive action that can be taken to recoup losses and to punish an offender through fines, often with treble damages allowed. Its wording is more explicit than the Sherman Act, spelling out specific violations. The Robinson-Patman Act, which prohibits price discrimination, is also part of this law. Other portions deal with interlocking directorates of competing companies, mergers and acquisitions, and exclusive dealing arrangements.

3. Federal Trade Commission Act. Although not technically an antitrust law, it prohibits unfair competition and supplements provisions of the other two acts. It can be enforced only by the FTC.

Consequences for violating these acts can include prison sentences and significant fines, running into the millions of dollars, depending on the length of the violation and its impact. Anyone injured by an antitrust violation also can sue for damages and recover three times the specific dollar loss plus attorneys’ fees.

Guidelines and hints

To avoid running afoul of these laws, here are some guidelines and hints. Some states have even tighter regulations, and there are tort considerations as well. Consult with your attorney for specifics.

1. Don’t discuss pricing with competitors. Never attend a meeting at which pricing will be discussed. If it comes up at a meeting, protest (and follow this up in writing) and leave immediately.
2. Don’t discuss dividing or allocating customers, markets or territories with a competitor.
3. Don’t restrict the resale activity of a customer or attempt to control the customer’s resale price.
4. Don’t talk to retailers about the prices they charge for your products.
5. Don’t talk to your retailer-customers about other customers or about how you sell to other customers.
6. Don’t require a customer to buy exclusively from your company.
7. Don’t require a customer to buy one product to obtain another.
8. Don’t make sales or purchases conditional on reciprocal sales or purchases.
9. Don’t suggest that a purchaser should buy from your company because your firm buys from the purchaser’s company.
10. Don’t charge different prices for the same volume of product to customers who may compete with each other.
11. Don’t disparage a competitor’s product, verbally or in writing, unless you can prove your charges.

These are general guidelines and are not a complete statement of the antitrust laws. You should review these guidelines and specifics with your company’s counsel and be certain the basics are conveyed to all employees, especially sales people.

Meetings of trade associations, which bring together many key competitors, potentially can be viewed as generating illegal activities. Employees working on association activities that include employees from competing companies should be certain that:

1. Minutes are kept of all meetings of any committees and the general group.
2. Competent counsel is present at each meeting and is available for advice.
3. No discussion of any type is held dealing with any subject matter that could be unlawful, especially pricing or customer dealings.
4. The trade association is formed and operates in good faith for the benefit of the industry and allows all participants to benefit by its activities.

There is no legal duty imposed on your company to establish a program for antitrust compliance. However, the existence of such a program can mitigate against culpability in the eyes of law enforcement if an employee is charged or convicted of a crime that can reflect on the company.

REAL-LIFE EXAMPLE [top]

In 1996, the Antitrust Division of the U.S. Department of Justice leveled antitrust charges against Dani Siegel, owner and president of two New York City companies that make display materials purchased on a low-bid basis by consumer-goods companies. The Department of Justice charged that Siegel took part in a conspiracy with his competitors such that the supply bidders decided in advance which of them would submit the low bid for a project. He also was charged with paying kickbacks to purchasing agents to funnel work to his companies, and then recouping these payments by submitting false invoices to the marketers. Siegel pled guilty and agreed to cooperate with prosecutors. By 2000, more than 28 individuals and nine corporations had pled guilty to various federal charges of antitrust conspiracy, paying or receiving kickbacks, income tax evasion and similar offenses. In fall 2000, Siegel was sentenced to six months in prison followed by six months of home confinement followed by two years of supervised release. He also was fined $1.3 million and one of his companies was fined $500,000.

DO IT [top]

1. Talk with your company counsel about crafting a guidebook on antitrust compliance to ensure that all employees understand what is illegal, especially when in contact with competitors.
2. Review membership in all trade associations and prepare guidelines for participation at meetings.
3. Have company counsel meet periodically with attendees at association meetings to discuss the meetings and maintain an ongoing overview of antitrust compliance.
4. Discuss with sales people all pricing policies and the importance of compliance with them.
5. Review contract language to ensure arrangements are spelled out concerning dealers and agents, pricing and termination.
6. Review sensitive information shared through any joint ventures in which the company is participating, as they can lead to antitrust investigations.
7. Ask each board member to submit a list of other companies in which the member serves in a similar capacity.
8. Review purchasing procedures to ensure the Robinson-Patman act is not being violated. It is just as illegal to accept an improper price as it is to provide one.

RESOURCES [top]

Books

American Antitrust Laws in Theory and in Practice by Melvin L. Greenhut and Bruce Benson (Avebury, 1989).

Antitrust Law and Economics in a Nutshell, 4th edition, by Ernest Gellhorn and William E. Kovacic (West, 1994).

Antitrust Law: An Economic Perspective by Richard A. Posner (University of Chicago, 1976).

Federal Antitrust Policy: The Law of Competition and its Practices, 2nd edition, by Herbert Hovenkamp (West, 1999). This extensive analysis of court decisions is more for lawyers than managers.

Handbook of the Law of Antitrust by Lawrence Anthony Sullivan (West, 1977). This extensive analysis of court decisions is more for lawyers than managers.

Internet Sites

Antitrust Case Browser. Anthony D. Becker, St. Olaf College. A collection of U.S. Supreme Court case summaries dealing with violations of antitrust statutes.

"Entering the 21st Century: Competition Policy in the World of B2B Electronic Marketplaces," U.S. Federal Trade Commission (October 2000).The 91-page document is slow to load. You may want to limit the view to the 33-page Part 3, "Antitrust Analysis of B2Bs."

Antitrust Division, Department of Justice

The American Bar Association’s section on antitrust law

American Antitrust Institute. News page maintained by a Washington-based, independent, nonprofit, education, research and advocacy organization.

Writer: Craig A. Shutt

Craig A. Shutt interviewed Paul H. Vishny of the legal firm of D’Ancoa & Pflaum in Chicago, Ill., who prepared the "Antitrust Compliance Manual" for the Point of Purchase Advertising Institute. Additional material was supplied by the Antitrust Division of the U.S. Department of Justice.