Antitrust for Business Lawyers · Business Lawyers December 8, 2010 Douglas Ross. Davis Wright...

Antitrust for Business LawyersDecember 8, 2010

Douglas RossDavis Wright Tremaine LLPSeattle, WA

Overview

Non-solicitation agreements

Interlocking directors

Joint ventures and partial acquisitions

Mergers without an HSR filing

Bad words

Corporate leniency

But first: antitrust law in five minutes

Four areas

Joint conduct

Unilateral conduct

Mergers

Price discrimination

Joint conduct

Section 1 of the Sherman Act

Every contract, combination or conspiracy in restraint of trade is unlawful

Two elements

Agreement

Harm to competition

Joint conduct

Harm to competition

Prove harm in a relevant market

Presume harm

Joint conduct

Harm to competition

Rule of Reason

Per se rule

Unilateral conduct

Section 2 of the Sherman Act

Prohibits:

Attempts to monopolize

Conspiracies to monopolize

Actual monopolization

Elements:

Monopoly power

Anticompetitive conduct

Possession of monopoly power is not unlawful

Overview





Bad words

Corporate leniency


Antitrust Division: complaint and consent decree against 6 tech firms (September)

Claim: bilateral agreements prevented cold calling


Apple

Google

Adobe

Pixar

Intel

Intuit

Non-solicitation agreementsExample: Apple-Google

All employees

No geographical limits

Apple complained when believed breached

Google investigated and reported back


DOJ: per se unlawful

Could be lawful if:

Ancillary

Reasonable scope


“Ancillary”

Necessary or intrinsic part of a pro-competitive activity

Rule of reason applies, not per se rule


Examples of ancillary agreements

Employment or severance agreements

Mergers, acquisitions, investments

Contracts with

Consultants, providers of temp employees

Resellers, OEMs, providers of services

Settlement of legal disputes

Take-aways

Non-solicitation agreements can be lawful if narrowly tailored

Take-aways

Agreements among purchasers can be per se illegal too

Take-aways

Legal departments did not know what HR was doing

Overview





Bad words

Corporate leniency

Interlocking directorsInterlocking Directorate Act

No person shall at the same time serve as an officer or director of two corporations that are “by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws”

If each of the corporations has capital, surplus, and undivided profits aggregating more than $25,841,000 (2010)

15 U.S.C. §19 (Clayton Act §8)

Interlocking directorsQuestions

What does “capital, surplus, and undivided profits” mean?

Does the Act apply only to corporations?

Does this apply to subsidiaries of a common parent? Parent-subsidiary?

Can the Act be avoided by appointing non-officer to an interlocking board?

Interlocking directorsMore questions

Does the Act apply to potential competitors?

Does it apply to interlocks between suppliers and customers?

Does it apply to interlocks where individuals from competing corporations sit on a board of a noncompeting company?

Are there exceptions?

Interlocking directorsThe Act does not apply where the competitive

sales …

… of either corporation are less than $2,584,100

… of either corporation are less than 2% of that corporation’s total sales

… of each corporation are less than 4% of that corporation’s total sales

Interlocking directorsIs this a real issue?

One-fifth of the 1,000 largest U.S. companies share at least one board member with another top 1,000 company


More than 1,000 board members from the top U.S. companies sit on four or more corporate boards


235 of these board members sit on seven or more corporate boards

USA Today (2002)

Interlocking directorsWould the government

ever enforce this?

Shared two directors

Eric Schmidt

Arthur Levinson

Interlocking directorsWould the government

ever enforce this?

Take-aways

Often overlooked

Take-aways

Act is enforced

Take-aways

Has exceptions but…whether or not Act applies, Section 1 always applies …… and, Commissioner Rosch has suggested Section 5 of the FTC Act could be applied to “loopholes”

Overview





Bad words

Corporate leniency

JVs and partial acquisitions

Parent and wholly-owned subsidiary cannot conspire

Copperweld (1984)

What if the subsidiary is less than wholly owned?

JVs and partial acquisitionsWhat’s the issue when there is less than complete

ownership?

Unity of interest/control

Ownership interest

Representation on the board

Right to select or remove board members

Reserved powers

Right to hire and fire CEO

JVs and partial acquisitions

What if X owns 50% of Y (and X and Y sell the same product in the same market)?

Can X set Y’s prices?

Does X control Y?

Probably not

What should the JV do?

Antitrust guidelines

Take-aways

The test is control

Take-aways

51% ownership may – or may not – be enough

Take-aways

50% is usually not

Overview





Bad words

Corporate leniency


Hart-Scott-Rodino Act

Must file if:

Value of the transaction is > $252.7 million

Value of transaction between $63.4 million and $252.7 million, and size of companies test is met:

A = $126.9 million total assets or annual sales

B = $12.7 million total assets or annual sales

So: No filing if < $63.4 million


If a company doesn’t have to file is it home free?

Has the FTC ever filed suit against a non- reportable merger?

FTC vs. LabCorp – last week

Laboratory Corp. of America $57.5 million acquisition of Westcliff Medical Labs


So what should a company do to avoid a challenge if its merger is non-reportable?

Visit the agencies?

Which?

No safe harbor: filing an HSR report does not stop the FTC from suing a company later

Take-aways

You’re never safe

Take-aways

If no filing is required

Approach the agencies informally?

Take-aways

If filing is required

File!

Don’t assume it’s over if the deal clears

Overview





Bad words

Corporate leniency

Bad words

“When you see the competition drowning … stick a water hose down their throats”

The “antitrust laws do not condemn, without more, such colorful, vigorous hyperbole”

Advo v. Philadelphia Newspapers, (3d Cir. 1995)

Bad words

“These turkeys . . . ought to be flushed”

This “provided little insight into intent to monopolize”Olympia Equip. Leasing v. Western Union (7th Cir. 1986)

Bad words

“One memo, for example, discusses ways to ‘shut down’ and ‘kill’ Cigarettes Cheaper! ‘on the beach’”

“As we remark frequently in antitrust litigation, ‘cutthroat competition’ is a term of praise rather than condemnation”

“Consumers gain when firms try to ‘kill’ the competition and take as much business as they can”

R.J. Reynolds v. Cigarettes Cheaper!, (7th Cir. 2006)

Bad words

Oracle’s President: “The back office applications market for global companies is dominated by an oligopoly comprised of SAP, PeopleSoft, and Oracle”

Mere “spice”

United States v. Oracle (N.D. Cal. 2004)

Take-aways

Write for an audience

Take-aways

Write to make your mother proud of you

Overview





Bad words

Corporate leniency

Corporate leniency

Benefits

No prosecution of corporation or board, executives or employees

For offenses prior to the date of the letter

In connection with the anticompetitive activity reported

Corporate leniency

If the Division is not aware of the conspiracy:

First in the door

Prompt and effective action to withdraw on discovery

Reports with candor and completeness

Confession is corporate act

Restitution

No coercion of others; not the leader

Corporate leniency

If the Division is aware of the conspiracy

Same as before and:

Division does not have evidence against corporation

Would not be unfair to others

Corporate leniency

Process

Must be first

Obtain a “marker”

Given time to investigate

Must admit guilt

Must cooperate

Corporate leniency

Only one company per conspiracy

Huge consequences – air cargo investigation

21 airlines, 19 executives charged (through last week)

$1.7 billion in criminal fines imposed

Four executives sentenced to prison

Charges pending against the remaining 15 executives

Can be revoked

Take-aways

Don’t violate the antitrust laws

Take-aways

Don’t violate the criminal antitrust laws

Take-aways

If you do – confess

Quickly!

Questions

Antitrust for Business Lawyers · Business Lawyers December 8, 2010 Douglas Ross. Davis Wright...

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