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Authors:  Molly Donovan & Luke Hasskamp

Liv is 8. She just moved to town from out of state and has 3 new neighbor friends Paul, Greg and Adam (“PGA”). The PGA kids seem very nice and well mannered. They wear pastels. And the coolest thing about them: they have a mini-golf course they built in their backyard years ago. It is touted as the best and most exclusive place for kids to play golf and rightly so. All the best mini golfers play there and only there. Frankly, there is no real competition for mini golf in the county.

Even though Liv is new to town, she thinks she has the chops to build a mini-golf course that rivals her neighbors’. Her house is bigger, her backyard is bigger, her parents will buy better equipment, and Liv is going to award the winner of each round a very fancy prize. Kids are thrilled—and one by one, even the best mini golfers start trying Liv’s course.

PGA is not happy. Stunned that Liv would challenge their longstanding position as the best and only course in town, they unilaterally announce that any kid who chooses to play in Liv’s yard will be banned from their original and still most popular and reputable course. Players must choose: one course or the other, but not both.

(The antitrust lawyer is growing concerned. This sounds like a monopolist trying to bully an emerging competitor by cutting off access to customers. What’s worse, Paul and Greg might be depriving kids of meaningful choice when it comes to mini golf.)

And for sure, the kids are upset, but they’re also a bit confused. On the one hand, any business owner has the right to choose with whom they will deal, right? On the other hand, PGA’s decision to punish kids who want to play at Liv’s every once in a while seems wrong.

The kids call their antitrust lawyer, and here’s what she says: you all should file a class action on behalf of every kid in town who wants to play at both courses and have a real choice when it comes to mini golf competition. The PGA contingent is not competing on the merits, that is, they are not getting mini golfers to come to their course by making it better. Instead, they are monopolists who are using their dominance unfairly to box out a nascent competitor. I’ll represent you, although I’m not sure what your monetary damages are. We could try to get an injunction but I’ll need a retainer for that.

Unable to raise enough funds for the retainer, the kids simply call up PGA demanding that their ban be ceased or else nobody will sit with them at lunch or play with them at recess. That did the trick and the ban was called off immediately. Now kids can play at both mini golf courses!

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Colgate Doctrine

Author: Jarod Bona

As an antitrust boutique law firm, we receive a varied assortment of antitrust-related questions. One of the most common topics involves resale-price maintenance.

That is, people want to know when it is okay for suppliers or manufacturers to dictate or participate in price-setting by downstream retailers or distributors.

I think that resale-price maintenance creates so many questions for two reasons: First, it is something that a large number of companies must consider, whether they are customers, suppliers, or retailers. Second, the law is confusing, muddled, and sometimes contradictory (especially between and among state and federal antitrust laws).

If you want background on resale-price maintenance, you might also review:

Here, we will discuss alternatives to resale-price maintenance agreements that may achieve similar objectives for manufacturers or suppliers.

The first and most common alternative utilizes what is called the Colgate doctrine.

The Colgate doctrine arises out of a 1919 Supreme Court decision that held that the Sherman Act does not prevent a manufacturer from announcing in advance the prices at which its goods may be resold and then refusing to deal with distributors and retailers that do not respect those prices.

Businesses (with some exceptions) have no general antitrust-law obligation to do business with any particular company and can thus unilaterally terminate distributors without antitrust consequences. Before you rely on this, however, you should definitely consult an antitrust attorney, as the antitrust laws create several important exceptions, including refusal to deal, refusal to supply, and overall monopolization limitations.

Both federal and state antitrust law focuses on the agreement aspect of resale-price maintenance agreements. So if a company unilaterally announces minimum prices at which resellers must sell its products or face termination, the company is not, strictly speaking, entering an agreement.

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Yang Yang

Author: Yang Yang.

Ms. Yang is an Antitrust Partner at Fairsky Law Firm, which has a New York office. She is also a lecturer and researcher at China University of Political Science and Law. She authored a treatise on China Merger Control and is a member of the expert advisory team for Amendments to China Anti-Monopoly Law (with a total number of 8 members). Indeed, she leads the drafting of an expert report on suggested amendments to China Merger Control regime, Chapter 4 of Chinese Anti-Monopoly Law. She is also a frequent contributor to the Antitrust Report of LexisNexis and Competition Policy International (Asia Column and Asia Chronicle).

On June 24, 2022, the Chinese Standing Committee of the National People’s Congress passed amendments to the Chinese Anti-Monopoly Law, which will come into force on August 1, 2022. These amendments have been the first ones since the first adoption of Chinese Anti-Monopoly Law in 2008.

They cover the following topics: (i) antitrust investigations by the Chinese Antirust Bureau under the SAMR, (ii) merger control review by the Chinese Antitrust Bureau under the SAMR, and (iii) civil litigation or private actions seeking damages or claiming invalidations of contractual provisions based on a violation of Chinese Anti-Monopoly Law. These amendments mark significant changes to China’s antitrust regime.

You might also enjoy the following articles that I’ve authored on The Antitrust Attorney Blog:

Antitrust Merger Control in China: Notifiable Transactions under the People’s Republic of China Anti-Monopoly Law

Draft Amendment to Chinese Antitrust Law Calls for Further Clarifications

Administrative Enforcement by Chinese Antitrust Bureau

With regard to antitrust investigations by Chinese Antirust Bureau under the SAMR, the changes primarily relate to (a) vertical agreements––i.e., RPM; (b) hub-and-spoke agreements, and (c) to the abuse of dominance by internet/technology companies.

Vertical Agreements

These amendments introduce a new “safe harbor” rule for vertical agreements based on the market share of investigated parties in their relevant markets. They now supply more detailed guidance on relevant-market definition, including specific precedents for certain industries. This guidance reduces uncertainty for the investigated parties.

Hub-and-Spoke Agreements

Hub-and-spoke agreements involve manufactures and distributors not entering directly into Resale Price Maintenance provisions (RPM), but rather holding meetings to facilitate horizontal agreements. These fall within the scope of prohibited horizontal agreements in Chinese Anti-Monopoly Law.

For any investigation relating to horizontal or vertical agreements, there is also a new issue of whether any party to such agreements has hosted meetings, organized exchanges of information, or provided substantial facilitation. This also calls for more future guidance from the regulators.

Abusive Conduct by Technology Companies

For internet companies, the provision on prohibiting abusive conduct by algorithms or platform policies is not new. Algorithms and platform policies are commonly used by internet companies. But this new provision may indicate a potential priority from law enforcement. This seems to be consistent with merger control rules and the Chinese Antitrust Bureau’s priority relating to markets impacting the national economy and people’s daily lives, which includes areas of public facilities, pharmaceutical manufacturers and internet platforms.

Merger Control

In the merger control realm, there are three main changes: (i) notification of voluntary transactions, (ii) the introduction of a “Stop the Clock” mechanism, and (iii) a new merger review process by categories and levels. These changes can cause the following uncertainties in practice and may require more detailed guidance.

Notification of Voluntary Transactions

Under this new provision the Chinese Antitrust Bureau has the power to require parties to notify transactions before they are implemented if there is evidence of potential anticompetitive effects. There is no mandatory obligation, however, to notify transactions that do not trigger the relevant merger thresholds before their implementation.

But, despite the new law, current rules do encourage voluntary transactions involving, for example, active pharmaceutical ingredients. These changes create uncertainty on whether the authority has any power to reverse such transactions or impose remedies after their implementation.

In addition, under the new law, the authority must first require the parties to notify the transaction. If the parties do not comply with the notification request, the authority will initiate an official investigation. This process allows the parties to provide evidence and prove that the transaction does not have anticompetitive effects. The authority then has the power to approve (with or without remedies), or prohibit the transaction.

“Stop the Clock” Provision

The new “Stop the Clock” provision grants the authority more time to review the transaction if the notifying parties fail to provide documents on time. At the same time, the notifying parties will now have more time to respond to the authority and to other parties’ concerns.  But under the current law and rules, the authority usually requires the parties to withdraw and refile a notification if the review process has reached the 180-day deadline. Therefore, the new law may restrain the Chinese Antitrust Bureau from extending an investigation longer than 180 days. We will have to see what happens.

New Merger Review Process by Categories and Levels

Finally, the new merger review process by categories and levels calls for more detailed rules on implementation and policies and creates uncertainty as to whether some industries will have higher scrutiny than others.

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Authors: Luis Blanquez and Steve Cernak

The adoption of the new Vertical Block Exemption Regulation and Guidelines has created a hectic few months in the European Union for those in the world of antitrust and distribution agreements.

1. The European Commission updates existing vertical rules

On May 10, 2022, the European Commission (EC) adopted the new Vertical Block Exemption Regulation (VBER), together with the new Guidelines on Vertical Restraints. The core of applicable rules to vertical agreements––those entered into between undertakings operating at different levels of the distribution chain––remains the same, but the EC has now introduced some significant changes, especially for online sales and platforms. The new VBER entered into force on June 1, 2022, and will expire on May 31, 2034. There is also a transitional period of one year for those agreements already in force that satisfy the conditions for exemption under the old VBER, but do not satisfy the conditions under the new VBER.

Like the old, the new VBER allows parties to vertical agreements to determine their compatibility with Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”), by establishing a safe harbor exemption. In a nutshell, when the share of both buyer and seller does not exceed 30% of the relevant market, and absent any “hardcore restrictions” such as territorial or customer restrictions or resale price maintenance among others, their vertical agreements are automatically exempted. Agreements that do not satisfy the VBER conditions may still qualify for an individual exemption under Article 101(3) TFEU.

a. Dual Distribution

Dual distribution happens when a supplier is both active upstream, at the wholesale level, but also downstream, selling directly to end customers in competition with other retailers. For instance, through its own online shop or a marketplace.

The new VBER––similarly to the old draft––covers dual distribution as a safe harbor, even though it excludes vertical agreements between competitors. But the new draft includes two important nuances:

  • First, the protection is now extended to cover not only manufacturers, but also importers and wholesalers. With one wrinkle: The so called “hybrid function”. Vertical agreements involving online intermediation services (OIS)––such as those provided by marketplaces or app stores among others––, where the provider acts as both a reseller of the same intermediated goods or services and competes with the same companies to which it provides those OIS, are excluded from the exception.
  • Second, it introduces a novel two-prong test to determine when information exchanges in a dual distribution scenario are exempted: (i) when they are directly related to the implementation of the vertical agreement; and (ii) they are also necessary to improve the production or distribution of the contract goods or services. The Guidelines also provide (i) a non-exhaustive “white list” of examples that benefit from the exemption, such as technical information, or recommended or maximum resale prices, among others; and (ii) a “black list” of information exchanges not covered––such as information related to future prices downstream, etc…

b. Parity Obligations / MFNs

Parity obligations, also known as Most Favored Nation clauses or MFNs, require the seller to offer to the purchaser the same or better conditions offered: (i) to those on any other retail sales channel or platforms (wide parity clauses), or through the seller’s direct sales channel, usually its own online website (narrow parity clauses).

Under the new VBER, wide parity clauses are not covered anymore, and companies need to assess them under the individual exemption of Article 101(3) TFEU. But there is again one wrinkle: When it comes to narrow parity obligations in vertical agreements involving the provision of OIS, they may be still excluded from the block exemption in highly concentrated markets with cumulative effects and lack of efficiencies.

c. Exclusive and Selective Distribution Systems

The new VBER updates the old definitions of active sales (seller actively approaches a customer) and passive sales (unsolicited request from customer) in light of the new online business environment. For instance, an online website making sales with a domain name from a territory different from the one the distributor is established, or even just using a different language to the one officially established in that territory, is now considered an active sale.

It also introduces what is called “shared exclusivity,” which is the ability to designate up to five exclusive distributors per territory or customer group.

A supplier may also now require exclusive (as opposed to selective) distributors to impose those same restrictions on active sales to their direct (as opposed to indirect) buyers or territories exclusively allocated to other distributors. But a supplier passing on the same restrictions further down the distribution chain is not block exempted. This is a significant difference from selective distribution systems, where the supplier is allowed to impose such restrictions through the whole distribution chain.

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Author: Jarod Bona

If you are looking for controversy, you came to the right place. Today, we discuss resale price maintenance, one of the most contentious issues in all of antitrust. If you look around and see a bunch of antitrust economists, hide your screen so they don’t start arguing with each other. Trust me; you don’t want to be stuck in the crossfire of that.

Let’s start with some background: A resale price maintenance agreement is a deal between, for example, a supplier and a retailer that the retailer will not sell the supplier’s product to an end user (or anyone, for that matter) for less than a certain amount. It is a straight vertical price-fixing agreement.

That type of agreement has a storied—and controversial—past. Over a hundred years ago, the Supreme Court in a case called Dr. Miles declared that this type of vertical price fixing is per se illegal under the federal antitrust laws. This is a designation that is now almost exclusively limited to horizontal agreements.

During the ensuing hundred years or so, economists and lawyers debated whether resale price maintenance (RPM) should be a per se antitrust violation. After all, there are procompetitive reasons for certain RPM agreements and the per se label is only supposed to apply to activity that is universally anticompetitive.

After a trail of similar issues over the years, the question again landed in the Supreme Court’s lap in a case called Leegin in 2007. In a highly controversial decision that led to backlash in certain states, the Supreme Court lifted the per se veil from these controversial vertical agreements and declared that, at least as far as federal antitrust law is concerned, courts should analyze resale price maintenance under the rule of reason (mostly).

You can read more about Leegin and how courts analyze these agreements here. And if you want to learn more about how certain states, like California, handle resale price maintenance agreements, you can read this article. Finally, if you are looking for a loophole to resale price maintenance agreements, read our article about Colgate policies and related issues.

Minimum advertised pricing policies (MAP) are related to resale price maintenance: you can read our article on MAP pricing and antitrust here.  You might also want to read Steven Cernak’s article about the four questions you should ask before worrying about the antitrust risks of new distributor restraints. And you can listen to a podcast with Molly Donovan and Steve Cernak about MAP Pricing here.

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Authors: Luke Hasskamp and Molly Donovan

We often write about sports and antitrust and have previously written about professional golf, and, specifically, the legal implications of a competitor golf league trying to break onto the scene:

The new league, LIV Golf, seeks to compete with the PGA Tour, as well as the European tour (known as the DP World Tour). Indeed, LIV Golf held its first event this past weekend in London, which included 48 participants. Of those, 17 players were members of the PGA Tour. Charl Schwartzel emerged as the winner of the “richest tournament in golf history,” taking home $4.75 million in prize money, which was more than he won during the last four years combined.

In response, the PGA Tour handed down harsh discipline to those 17 players who joined LIV Golf, suspending them indefinitely. The PGA Tour also promised to suspend any other players that participate in future LIV Golf events. It’s a dramatic step, and surely not the last word on the matter.

Now, let’s say you’re one of those 17 players who has been suspended, or you’re a member of the PGA Tour considering playing for LIV Golf but you’re facing such a ban. There are many things to consider, of course. But let’s focus on your legal options. Would the PGA Tour’s ban of a player that chooses to participate in a competitor’s event be lawful? Do the federal antitrust laws in the United States provide you any remedies? Potentially. Let’s take a closer look.

Section 2 of the Sherman Act – Monopolization

Federal antitrust laws make it illegal for a monopolist to preserve its dominant market position through anticompetitive conduct. Here, the PGA Tour sure looks like a monopoly. It’s the dominant actor in the professional golf market in the United States, with revenues well exceeding $1 billion per year. If you are an elite professional golfer in the United States, it’s pretty much the only place to play. (Actually, the PGA Tour, in this context, looks more like a monopsony, as it’s the dominant purchaser of labor in the professional golf market.)

But being a monopoly is not illegal by itself. Instead, there must be some anticompetitive or exclusionary conduct that harms competition in the market.

Typical examples of procompetitive conduct include lowering prices, improving quality, enhancing services, or, in the labor market, raising wages and improving benefits. Antitrust laws like these types of behavior because they enhance competition and are good for consumers. A monopoly that holds onto its dominant market position by offering the lowest prices and the best product is generally a good thing and something antitrust laws seek to encourage. Similarly, a monopsony employer that attracts and retains the best employees by paying the highest wages, offering the best benefits, and otherwise creating the most attractive work environment is the type of outcome that is perfectly acceptable from an antitrust perspective.

Anticompetitive conduct can be harder to define, but can include things like threatening customers or employees, an exclusionary boycott, bundling, tying, exclusive dealing, disparagement, sham litigation, tortious misconduct, and fraud. We’re looking for improper attempts by a monopolist to box out a competitor.

When we look at the current PGA Tour dispute and its decision to suspend players who play for LIV Golf, it seems at least arguable that the PGA Tour’s conduct is anticompetitive. They are not attempting to retain the best golfers by raising compensation, creating more opportunities, or otherwise enhancing the work environment for its players. Instead, the PGA Tour is punishing players who choose to participate in a rival’s events. The conduct appears designed to stifle a would-be competitor.

Section 1 of the Sherman Act – Agreements

Federal antitrust laws also analyze agreements by two or more parties that restrain trade in the market. And agreements between horizontal competitors are closely scrutinized under the per se standard.

Consider professional baseball’s long and storied antitrust history. Those antitrust disputes started (more than 100 years ago) because teams had collectively agreed not to sign each other’s players. Back then, baseball contracts included a “reserve clause,” which reserved a team’s right to a player in perpetuity. Thus, once a player signed with that team, he was only able to re-sign in following years with that same team (unless the team released him). All teams agreed to honor each other’s reserve clauses by agreeing to not sign another team’s players, even if his contract had expired. The reserve clause intentionally suppressed competition by, in essence, preventing free agency. It suppressed players’ salaries. With only one team competing for a player’s services, rather than a full league, teams avoided bidding wars and players had little recourse but to accept the amount offered by their team.

Here, we’d ask whether the PGA Tour has entered into any agreements (formal or otherwise) with another party that restrain trade in the market for professional golf services. There is at least some indicia of such agreements. The European tour (the DP World Tour) has hinted that it may follow the PGA Tour’s approach to dealing with members would participate in LIV Golf. This may stem from the PGA Tour’s “strategic alliance” with the DP World Tour. This sure looks like it could be a horizontal agreement between competitors. Other entities may also be considering similar agreements with the PGA Tour, including the PGA of America, which runs the PGA Championship, one of golf’s four majors, as well as the Ryder Cup, a wildly popular team competition between players from the United States and Europe. The PGA of America, a separate entity from the PGA Tour, has suggested that it is likely to not permit LIV Golf players to participate in the PGA Championship or Ryder Cup.

Of course, sometimes competitors will follow each other’s policies, prices, or practices without an agreement of any sort. That is called conscious parallelism and is not an agreement in restraint of trade because there is no agreement. We don’t know whether there is an agreement here or the European Tour is merely following the PGA Tour in a round of conscious parallelism.

Remedies

A plaintiff prevailing on an antitrust claim has a right to treble damages, which is three times their actual damages, as well as attorney fees.

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Author: Molly Donovan

We recently released episode 2 of our “If I Were You” podcast. You can listen to this episode about minimum advertised prices here. Featuring Bona Law partner Steve Cernak. Or read our blog version now:

This Episode Is About: Minimum Advertised Pricing (MAP) Programs

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Authors:  Steven Cernak and Luis Blanquez

Section 8 of the Clayton Act prohibits certain interlocking directorates between competing corporations. But while the prohibition has been around since 1914, most antitrust lawyers pay little attention to it, partly because companies can quickly resolve any issues voluntarily. Recent comments by the new AAG Jonathan Kanter, however, hint that litigation might play a larger role in future Section 8 issues.

Clayton Act, Section 8 Basics

The prohibitions of Section 8, in its most recent form, can be simply stated: No person can simultaneously serve as an officer or director of competing corporations, subject to certain jurisdictional thresholds and de minimis exceptions. Truly understanding the prohibition, however, requires understanding all those italicized terms.

First, Section 8’s prohibition applies only if each corporation has “capital, surplus, and undivided profits,” or net worth, of $10M or more, as adjusted. The FTC is responsible for annually adjusting that threshold for inflation and usually announces the change early in the calendar year along with changes to the Hart-Scott-Rodino thresholds. Currently, the threshold is just over $41M.

Section 8 provides an exception where the competitive sales of either or each of the corporations is de minimis. Specifically, no interlocks are prohibited if the competitive sales of 1) either corporation are less than $1M, as adjusted (currently about $4.1M); 2) either corporation are less than 2% of that corporation’s total sales; or 3) each corporation are less than 4% of that corporation’s total sales.

Originally, Section 8 applied only to directors of corporations; however, the 1990 amendments extended the coverage to officers, defined as those elected or chosen by the corporation’s Board. Despite the clear wording of the statute limiting it to officers and directors, courts have considered the possibility that Section 8 might apply when a corporation’s non-officer employee was to be appointed a director of a competitor corporation.

The language of Section 8 clearly applies to interlocks between competing corporations. An interlock between a corporation and a competing LLC would not be covered by the statutory language or the legislative history of the original statute or amendment. The FTC and DOJ have not explicitly weighed in on application to non-corporations, although the FTC’s implementing regulations for Hart-Scott-Rodino cover LLC explicitly as “non-corporate interests” different from corporations. Still, the spirit of Section 8 would seem to cover any such non-corporate interlock. Also, any corporate director who also serves a similar role for a competing LLC would face an increased risk of violating Sherman Act Section 1.

Section 8 clearly applies if the same natural person sits on the boards of the competing corporations. It might also apply if the same legal entity has the right to appoint a natural person to both Boards, even if that entity appoints two different natural persons to the two Boards. That interpretation is consistent with the Clayton Act’s broad definition of “person” and has been supported by both the FTC and DOJ and the one lower court to consider the question.

As with other parts of the antitrust laws, the question of competition between the two corporations requires some analysis. The few courts to look at the question have found that corporations that could be found to violate Sherman Act Section 1 through an agreement would be considered competitors. On the other hand, these same courts did not define competitors more narrowly to be those corporations that would not be allowed to merge under the more extensive analysis of Clayton Act Section 7.

Kanter’s Speech

On April 4, 2022, at the ABA Antitrust Spring Meeting, Jonathan Kanter, the assistant attorney general in charge of the Antitrust Division at the DOJ, made during his speech some significant remarks about Section 8. First, he highlighted the fact that the Division is committed to litigating cases using the whole legislative toolbox that Congress has given them to promote competition, including Section 8 of the Clayton Act. Second, he reminded everyone that Section 8 helps prevent collusion before it can occur by imposing a bright-line rule against interlocking directorates. Third, that for too long, Section 8 enforcement has essentially been limited to their merger review process. And last but not least, that the Division will start ramping up efforts to identify violations across the broader economy and will not hesitate to bring Section 8 cases to break up interlocking directorates. The former head from the FTC made a similar statement back in 2019, indicating how Section 8 of the Clayton Act protects against potential information sharing and coordination by prohibiting an individual from serving as an officer or director of two competing companies.

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Author: Luke Hasskamp

Hello, friends. Let’s talk about some of the latest developments in the world of professional golf, at least from an antitrust perspective.

Last spring I wrote about the PGA Tour’s response to a potential competitor golf league. The new league promised to shake up professional golf, guaranteeing massive payouts to attract some of the top players in the game and offering unique competitions and tournament formats different from the standard PGA Tour event.

As with many upstart competitors, the new league generated a great deal of controversy. By far, the most controversial aspect is the league’s association with Saudi Arabia. Indeed, the league is mostly funded by the Saudi Arabia government not a golf hotbed. Saudi Arabia’s investments have been criticized as “sportswashing,”—“the practice of investing or hosting sporting events in a bid to obscure the Kingdom’s poor human rights record, and tout itself as a new leading global venue for tourism and events.”

This upstart league has gone through a few iterations and, with it, a few different names. Last spring it was referred to the Premier Golf League, and it has also been called the Super Golf League. The current moniker appears to be LIV Golf. (We’re excited to see what name they come up with next!)

Reports suggested that individual players were being offered substantial sums of money, upwards of nine-figure deals, simply to join the LIV league—including a reported $125 million offered to Dustin Johnson, the most prominent player to announce his intention to play in the LIV league. To put that in perspective, Tiger Woods is the all-time career money leader with $120 million (and only one other player has ever won more than $75 million all time (Phil Mickelson, $92 million).

My last article speculated on whether other actors would join the PGA Tour’s efforts to squelch the upstart league. Well, at least one partner said it would enforce the PGA Tour’s ban. The PGA of America (a separate entity from the PGA Tour) announced that anyone banned from the PGA Tour would also be barred from competing in the PGA Championship (one of golf’s four majors), as well as the biennial Ryder Cup. “If someone wants to play on a Ryder Cup for the U.S., they’re going to need to be a member of the PGA of America, and they get that membership through being a member of the Tour,” PGA of America CEO Seth Waugh said last May.

Waugh added that “the Europeans feel the same way,” suggesting the European tour would also enforce the PGA Tour’s ban at its events. And, indeed, the European tour (the DP World Tour) later issued a “warning memo” to its members against participating in LIV events. And, just recently, the United States Golf Association—the organization that hosts the U.S. Open, one of golf’s four majors—announced that “although the USGA ‘prides themselves on the openness of their tournament,’ they will also make their own decision about the eligibility of players at the upcoming U.S. Open . . . on a case-by-case basis.” This appears to be another not so subtle attempt at dissuading golfers from jumping to the Saudi league.

Along those lines, Phil Mickelson was not a participant at this year’s Masters tournament. Mickelson, as a past champion, has a standing invitation to play in the Masters, part of the tournament’s storied tradition. There was speculation that Masters officials instructed Mickelson not to attend the tournament due to the controversy. But Masters officials denied the report, stating that Mickelson decided not to participate in this year’s event. (Mickelson has not commented publicly on the specifics.) Mickelson also did not participate in this year’s PGA Championship, another major and one where Mickelson was the defending champion.

Sponsors also appear to be siding with the PGA Tour (or, perhaps, simply do not wish to align themselves with LIV and its Saudi connections). RBC announced that it was dropping its sponsorship deals with Dustin Johnson and Graeme McDowell after both golfers were linked to the Saudi league. Similarly, UPS dropped its deals with Lee Westwood and Louis Oosthuizen.

This all comes on the heels of the latest development: the LIV league’s first event is coming to fruition. It is scheduled for June 9-11 in London, at the same time as the PGA Tour’s RBC Canadian Open event. Because these are conflicting events, PGA Tour members needed to obtain express permission from the PGA Tour to participate. But the Tour rejected all requests for an exemption (as did the European tour). But several dozen players announced that they were in the field for the LIV event, a surprising number for an league that seemed on more than one occasion as if it would never get off the ground. (Interestingly, Phil Mickelson has not announced whether he will participate, and he was not listed as one of the 48 participants, although six spots were unannounced so it’s possible he’ll still be in the field.)

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Author:  Molly Donovan

Amelia is 9. She makes friendship bracelets that are quite good because she uses high-sheen thread sourced directly from Brazil. Amelia sells the bracelets at school, from anywhere between $5 and $10, depending on how much thread and labor is required to make a particular bracelet.

One day Amelia gets an email from her thread manufacturer stating: “Amelia, Bad news. The cost of embroidery thread has skyrocketed in Brazil—increases of 20% across all manufacturers. Do you want to continue with your regular procurement schedule?”

Amelia has no choice—the Brazilian floss is what makes her friendship bracelets so premium. “Yes,” she replies, “continue with the usual schedule.”

Naturally, due to her rising material costs, Amelia increases the price of her finished bracelets by 20%. Although not happy, the school friends buy them anyway because the bracelets are trending.

One day Amelia learns online that the Brazilian thread manufacturers had raised their prices illegally—in collusion with each other as part of a global thread cartel. As a result, each of the manufacturers is being prosecuted by the DOJ (save the amnesty applicant).

Wait. How could that be when all of the troublesome activity took place in Brazil? Who do the U.S. antitrust enforcers think they are?  Well, little did the thread manufacturers know, there is a U.S. statute called the Foreign Trade Antitrust Improvements Act (FTAIA) under which activities taking place beyond U.S. borders *might* be within reach of U.S. antitrust laws.

[“They should have called me,” says the antitrust lawyer, “I would have told them that.”]

Amelia is incensed. She wonders whether the FTAIA gives her a cause of action even though she’s a U.S. purchaser and the relevant cartel activity took place in Brazil. She’s super savvy. She calls her antitrust lawyer.

Here’s what the lawyer said:

The FTAIA says that there are two main ways in which foreign conduct becomes subject to private claims in the U.S.:  there’s import commerce or direct effects. The language of the statute itself is super confusing—even to grown-up lawyers—so, here’s a relatively simple way to break it down:

  • Import Commerce. Amelia’s is the definitive example of import commerce, i.e., a transaction between an overseas conspirator and a purchaser in the United States. The conspirator invoiced Amelia in the United States and shipped the product directly to her. Pretty clear cut—that’s import commerce and it’s actionable in the United States.

But say that the thread makers first sold the thread to distributors in Brazil and it was the distributors who imported the thread to the United States with no involvement from the manufacturers. That may “count” against the manufacturers as import commerce even though the manufacturers imported nothing to the United States themselves. Depending on the jurisdiction, some U.S. courts say that so long as conspirators targeted a U.S. import market, you have import commerce for purposes of the FTAIA. As a practical matter, targeting could simply mean that the conspirators discussed the fact that thread gets distributed worldwide, including in the United States, so potentially, this is a rather loose test.

  • Direct Effects. For foreign cartel conduct to meet the direct effects test, the conduct must have a direct, substantial and reasonably foreseeable effect on U.S. commerce and the U.S. effect must give rise to the plaintiff’s claim. What? Let’s unpack it:
  • Direct: if the U.S. effect comes immediately after the foreign price-fix, with no intervening steps, it’s direct.

Some courts have adopted an even looser standard—even if the U.S. effect is not immediate, so long as the product enters the U.S. reasonably close in time and steps to the initial sale of the price-fixed product, it’s direct.

For Amelia, there are no steps between the foreign fix and her U.S. purchase, so she’s good here.

  • Substantial: this has come up mainly in component-part cases—where one part of a finished product was subject to the foreign price-fix and the question is whether the component part is too small in size and cost relative to the finished good for the effect of the price-fix to be considered “substantial.”

While it’s not an issue for Amelia, it would be an issue for Amelia’s school friends who did not buy the thread itself, but did buy the finished bracelets. Since thread is the major material component and makes up the entire cost of a bracelet, excluding labor and overhead, it’s safe to say that the U.S. effect on the price of the thread could be “substantial” to a bracelet buyer, particularly if lots of thread came into the United States.

  • Reasonably Foreseeable: this prong hasn’t been litigated a whole lot either, but an objective test seems to be in order, e., there’s reasonable foreseeability if a reasonable person would expect the price-fixed product to wind up in the United States—even if the defendants themselves didn’t have that understanding or didn’t think about it.
  • Gives Rise To: the private plaintiffs who have faced challenges here purchased the relevant products outside the United States and argued that prices increased globally, so that there is some U.S. effect in play. In those cases, the effect in the U.S. may not “give rise to” a claim based on non-U.S. purchases. Amelia doesn’t have an issue here.

Bottom line: the FTAIA is not a serious hurdle for Amelia’s claim against the Brazilian thread makers—she can sue all of them on a theory of joint and several liability for trebled damages.

Morals of the Story: 

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