Articles Posted in Antitrust Counseling

Articles about antitrust counseling and training.

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Author: Aaron Gott

If you haven’t been told you need a strong antitrust compliance program, then you probably haven’t spent much time with an antitrust lawyer. But it’s true: a strong antitrust compliance program will benefit your company in myriad ways.

The U.S. Department of Justice Antitrust Division recently announced it will consider an effective antitrust compliance program as a factor in deciding whether to charge a company with a criminal antitrust violation. An antitrust compliance program can also help prevent your company from violating the antitrust laws in the first place and, hopefully, avoid an antitrust blizzard. But if it doesn’t, it can still give you a leg up in the race for leniency by ensuring prompt detection and internal reporting, earn the company points for sentencing reductions, and reduce the amount it pays in fines.

The key here, though, is that it must be an effective antitrust compliance program. Effective doesn’t mean perfect—after all, DOJ wouldn’t be making a charging decision if a perfect program were in place—but it does mean that it should be well-designed, applied in good faith, and it should actually work.

In practice, that means your antitrust compliance program should:

  1. Identify, assess, and define the likely antitrust risks in the company’s line of business

The first step in any risk management process is, of course, to determine and assess those risks. Your antitrust lawyer should look closely at all aspects of your operations:

  • The jurisdictions in which you operate
  • Your industry sectors and the markets in which you compete
  • Competition, concentration, and barriers to entry in those markets
  • Your regulatory landscape
  • Your existing and potential customers and business partners
  • Your supply and distribution chains
  • Your business transactions
  • The extent to which you use third parties in your business
  • Your involvement in trade associations and joint ventures
  • Your culture and climate
  • Your past antitrust issues

As part of this process, the company should identify leaders most knowledgeable about these various aspects of the business and have them take the time to thoroughly educate antitrust counsel.

  1. Be designed to detect and manage those risks

It should go without saying that your compliance program won’t be effective unless it is tailored to manage the antitrust risks the company is most likely to face. There is no effective off-the-shelf antitrust compliance program.

Company leadership should be consulted and involved in the crafting of your antitrust compliance program. You should consider the company’s past successes and failures in other areas of compliance, reporting, and risk management, and work directly with your antitrust lawyer to implement processes and techniques that proved successful in other contexts.

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Author:  Aaron Gott

The federal antitrust laws are a decisive proclamation that competition is the best policy—competition leads to better products and services, the greatest value at the lowest price. But, just like with anything else, there are exceptions. Congress and the courts have carved out numerous exceptions from antitrust liability—or as we’ll call them, exemptions. There’s an insurance exemption, a labor exemption, a baseball exemption, a state-action exemption, and many others. And they exist for a variety of reasons. Without the labor exemption, for example, union activity would be a felony. And we have a baseball exemption because, well, America likes baseball.

Today we’re going to talk about one important exemption for the agriculture industry: the farm cooperative exemption. Created by the Capper-Volstead Co-operative Marketing Associations Act (7 U.S.C. §§ 291–92), the farm cooperative exemption provides associations of persons or entities who produce agricultural products a limited exemption from antitrust liability relating to the production, handling, and marketing of farm products.

The farm cooperative exemption has some personal significance to me: I grew up across the street from one in my small Iowa town. And that co-op sponsored one of my little league teams.

At Bona Law, we regularly deal with antitrust exemptions. In fact, we have argued state-action exemption issues before the U.S. Supreme Court several times. As with any other exemption—and this is very important—the farm cooperative exemption is limited, disfavored, and narrowly applied. So it can easily become a trap. Like anything with antitrust, there are plenty of nuances and exceptions. We’re going to address some of those, but you should contact an antitrust lawyer if you really need to know whether the antitrust laws could apply, you’re being sued, or you want to consider suing.

The farm cooperative exemption allows a group of farmers—each of which is a competitor in the market—to come together and essentially act as one farmer. Through a cooperative, farmers pool their output together, agree on a price, and ultimately have more bargaining power in dealing with buyers—who historically were much bigger outfits than the individual farmers competing for their business.

The exemption also allows cooperatives to join together under a common marketing agency.

The exemption is overseen by the USDA, and the act gives direct oversight power to the Secretary of Agriculture. The secretary can, on his own volition, hold hearings, find facts, and issue orders to prevent cooperatives from monopolizing or restraining trade “to such an extent that the price of any agricultural product is unduly enhanced” as a result. But litigation—whether enforcement by the Department of Justice Antitrust Division or private civil lawsuits—is where a cooperative’s fate is usually decided.

Without the exemption, this sort of arrangement would be analytically indistinguishable from a price-fixing cartel, except that price-fixing cartels typically do not operate out in the open, since it is a serious felony. In fact, before 1922 when the act went into effect, farmers who acted together to market their products were sometimes prosecuted under the Sherman Act.

Conditions for the Antitrust Exemption

The Capper-Volstead Act establishes several conditions for the exemption to apply. There are two universal conditions:

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As a regular reader of The Antitrust Attorney Blog, you understand that setting prices or allocating markets with your competitor is a terrible idea. Doing so is likely to lead to civil litigation and perhaps even criminal penalties.

Price fixing and market allocation agreements are per se antitrust violations. That means they are the worst of the worst of anticompetitive conduct.

There is, however, a limited circumstance in which what would normally be a per se antitrust violation is instead treated by Courts and government antitrust agencies under the rule of reason:

An ancillary restraint.

You shouldn’t put ancillary restraints in your agreements without the help of an antitrust lawyer. That would be like juggling knives that are on fire. You might be able to do it, but if you make a mistake, you won’t like the results.

What is an Ancillary Restraint?

This isn’t an easy question to answer and, in fact, if you can answer it, you will often know whether your restraint will survive antitrust scrutiny.

Let’s back up a little bit.

In a typical situation, if two competitors agree to fix prices or to split a market (perhaps they will agree to limit their competition for each other’s customers), they commit what is called a per se antitrust violation. What that means is that this type of restraint is so consistently anticompetitive that courts won’t even examine the circumstances—it is per se illegal.

Obviously you should avoid committing per se antitrust violations, unless, of course, you want to experience an antitrust blizzard.

Without further context, such a restraint is often called a naked restraint of trade. That doesn’t mean that the cartel meets at a nudist colony; it means that it is an anticompetitive agreement with nothing surrounding it. Such agreements are almost always done to gain greater profits from the restraint itself.

So what does a non-naked restraint of trade look like? Interesting question. I will answer it, but you have to read through most of this article.

Sometimes two or more parties, even competitors, will put together a joint venture or collaboration that creates what antitrust lawyers often call efficiency. You might normally think of efficiency as running more smoothly or at the same or better result with fewer resources.

But when antitrust attorneys use the term “efficiency” or “efficiency enhancing,” they often mean that the venture or combination will create economic value for the marketplace as a whole that wouldn’t exist but for the agreement. The term often comes up in the merger context, as an antitrust analysis of a merger will examine whether the benefits through efficiency and more exceed any potential anticompetitive harm.

An Ancillary Restraint Example

Sometimes it is easier to understand with an example: Let’s say you have a company called Research that is full of people with PhDs that spend all of their days trying to figure out how to make the world a better place. If someone at Research comes up with a good idea, the company will sometimes manufacture and sell the finished product itself.

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Author: Jarod Bona

It depends. But probably not. Outside of California, courts may enforce these non-compete agreements arising out of an employment contract. Of course, most courts, no matter what the law and state, view them skeptically. In California, however, the policy against these agreements is particularly strong.

A restrictive covenant is often part of an employment agreement that restricts the employee’s actions after leaving employment. They typically prohibit the employee from competing in particular markets for a period of time after leaving the employer, but may also keep the employee from soliciting the company’s customers or even employees after leaving.

They are, unquestionably, restraints on trade. But are they unreasonable restraints on trade? In many states that is the issue—if they are reasonable, a court will enforce them. What does reasonable mean? Again, it depends. But typically, like other restraints on trade, they must usually be narrowly tailored to serve their purpose. They should contain “reasonable” limitations as to time, geographic area, and scope of activity.

The laws, of course, vary from state to state. But as a practical matter, most judges are skeptical. Some courts will actually rewrite the agreements to make them reasonable.

The purpose of these restraints is to offer protection to an employer that must necessarily share trade secrets and sensitive customer or financial information with their employees. The concern is that this information is so sensitive and easily exploited by a competitor that the employer needs the restrictive covenant to keep an employee from leaving and benefiting from the information as a competitor. It also reduces the likelihood of free-riding on training.

Despite these benefits, California law and courts take a hard stand against certain restrictive covenants. The California Supreme Court in Edwards v. Arthur Anderson LLP explained, for example, that “judges assessing the validity of restrictive covenants should determine only whether the covenant restrains a party’s ability to compete and, if so, whether one of the statutory exceptions to Section 16600 applies.” (exceptions include the sale of goodwill or corporate stock of a business).

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Author: Jarod Bona

You may not realize this, but a lot of people don’t like lawyers. We even have our own genre of comedy that predates Shakespeare: lawyer jokes. Here is a common example: What do you call 1000 lawyers at the bottom of the ocean? A good start!

When you heard that joke for the first time, you probably laughed and laughed, shook your head and said, “funny because it’s true.”

So why do people dislike lawyers? To save you time, I’ll focus on one reason and leave the rest for others: Because lawyers spoil the fun by saying “no.”

This reason for not liking lawyers, of course, comes from the business context where companies consult either in-house lawyers or outside counsel about how or whether to proceed on a project or opportunity.

It is the lawyer’s job and duty to risk ruining the party. The business and sales people look at the opportunity and see upside: revenues, more market share, perhaps an important merger or acquisition.

It is the lawyer that must look at the opportunity to see the downside risks: the lawsuits, the disputes, the government reactions or investigations, the response from competitors. Then, oftentimes, the lawyer says “no.” The music stops and people go back to their offices, sometimes frustrated and angry, perhaps thinking that the lawyer should be on the bottom of the ocean. The lawyer is the bad guy, even if he or she is just doing his or her job.

But this isn’t an article defending lawyers.

To be honest, most lawyers aren’t great, or sometimes even good. The same is true of most people in any profession. Only in Garrison Keillor’s Lake Wobegon, Minnesota is everyone above average (of course, he was talking about the children, but you get the point). And many criticisms about lawyers apply to many of members of this profession, including the fact that they just ruin the party by saying “no” all the time.

I think that the lawyer that just says “no” is a lazy lawyer that offers very little value to his or her client. Sometimes the lawyer must say “no,” but in most instances, there should be more and I don’t just mean justifications for the denial.

Of course, a client might come up to a lawyer and say the following: “As you know, we compete in a market with four main players. It seems silly that we spend so much time trying to undercut each other on price and so many resources trying to come out with new features to our product. Our adversaries may lack social grace, they may smell bad, and they certainly aren’t good looking, but they aren’t bad people. We could all make more money if we could just get together, have a meeting, set the price we are all going to charge, maybe divide up the customer base, probably by geography, and vote on features to add to our products.”

An antitrust attorney that hears this from a client, must say “NO,” in all caps, like they are yelling. Of course, after that, they better work on education through antitrust compliance counseling and training. Time to put together an antitrust compliance policy. The Department of Justice would certainly appreciate a strong antitrust compliance policy.

But in most instances—even where the client’s idea creates risk—a simple “no” is not the right approach, at least from a good antitrust attorney.

The scenario I described above—involving price fixing and market allocation (per se antitrust violations)—is a rare example of a situation where the antitrust laws are mostly clear.

In most instances, either the law or the application of law is not straightforward enough to entirely preclude the client’s objective. For example, the question of what is exclusionary conduct under Section 2 of the Sherman Act (Monopolization) is not an easy one to answer. There is still great debate among the courts, academics, and economists. Similar issues can arise if you are trying to determine if an exclusive dealing agreement violates the antitrust laws: Sometimes the answer isn’t clear.

Advising Business Clients on Antitrust Risks

I can’t speak for all antitrust attorneys, but here is how I handle counseling clients on antitrust risks:

First, I understand that the perspective of a business is different than the perspective of the typical lawyer.

The attorney, especially the litigator, has grown up (professionally) in a world where they win or lose a motion or case and where something is or isn’t illegal under the law. There are, of course, grey areas, but a young attorney that receives a research project, for example, is tasked with finding the “answer.” And courts have to give decisions on “the law” in such a way that suggests there is an answer, even when the reality is that it could have gone either way. But opinions rarely say that—when they do, it is a credit to the judge.

Businesses, however, make calculated judgments based upon risk, reward, and resources. Opening another factory has obvious risks and rewards and takes resources. The business executive tries to evaluate the risks, judge the potential upside, and compare both of those to the resources necessary to open the factory.

If you tell the business to not open the factory because there are “risks,” you aren’t helping it. The business executive will just stare at you like you are some sort of fool. Of course there are risks; the skill in running a business is to evaluate those risks and incorporate them into decisionmaking.

I understand this perspective even more clearly now, having run Bona Law for several years. Indeed, my bio now finally reflects that understanding.

Let’s apply this point to antitrust counseling: If a client comes to me with an opportunity, a project, or even a problem, it does the business little good for me to just say “no, there are risks.” That’s the lazy approach, in my view.

My value as the antitrust attorney in that situation is to help the client fully understand the risk. That is, I try to help the client appreciate the likelihood of the risk coming to fruition and the consequences of the risk, if it hits. And, in fact, the counseling is usually more complicated because there are often multiple risks, each with their own structure of probability and harm.

I do this because this is how businesses make decisions: They incorporate risk into the information that they have and make the best call they can.

Second, I work with the client to come up with options with similar rewards or upsides, but less antitrust risk—or some more preferable sliding scale of the risks and rewards.

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Author: Jarod Bona

You might hear from an antitrust attorney that it is important to have a strong antitrust compliance policy. And you may think to yourself, yes, I suppose it is. Then you go about your over-packed day, periodically seeing from other professionals that whatever their specialty is, you need to call them right away to have them help you too.

And that isn’t a surprise because each professional, each specialist in something, and, really, each person with any experience of any sort sees life through their own unique lens. We wrote about this in the context of trade associations.

The truth is we are all bombarded with marketing and emails and social media posts and problems in our lives and our world that are “urgent” or “important.”

So when I tell you that your company should have a strong antitrust compliance policy, no matter what its size, you may appreciate that advice, but recognize that (1) I see life through the lens of antitrust and competition law (among other lenses); and (2) Bona Law prepares antitrust compliance policies, so I am biased. And both of those are true. Whenever you evaluate what anyone says, you should do so understanding their perspective, as bias isn’t necessarily conscious or even negative—it often just is part of perspective and experience.

This is a long introduction to tell you that when it comes to antitrust compliance policies, you don’t just have to listen to me or the many other attorneys that advocate for them:

The Antitrust Division of the Department of Justice has now reversed its position and will give companies with robust compliance programs credit when considering charges.

The purpose of the policy change, of course, is to encourage companies to adopt and (just as importantly) follow strong antitrust compliance programs. If that occurs, the amount of criminal antitrust conduct should decrease. Of course, there may be an inverse relationship between the companies that would enact and follow an antitrust compliance program and those that would criminally violate the antitrust laws. But, still, it will probably help overall. And it should help to keep otherwise law-abiding companies from getting pulled into, for example, an industry-wide price-fixing cartel. If that happens, they will likely experience what we like to call an antitrust blizzard.

In a speech at New York University School of Law, Makan Delrahim said that in evaluating a policy for charging decisions, DOJ prosecutors would consider whether the program is well-designed, if the company applies it in good faith, and if the program actually works. So, as you can see, this is one of those policies that will evolve as they try it on a case-by-case basis.

The Department of Justice also released details on how it would evaluate antitrust compliance policies: US Department of Justice Antitrust Division: Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations.

We will write more about the specifics of a strong corporate compliance program in future articles.

In the meantime, you can read an article by Luis Blanquez about antitrust compliance policies in the US and Europe.

As you might know, the DOJ already has a leniency program, which you can learn more about here. DOJ will sometimes grant leniency to companies and people that report antitrust cartel activity and then cooperate with the DOJ investigation. DOJ antitrust attorneys, experts in competition themselves, incorporated some competition into their leniency program.

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Author: Jarod Bona

If, like me, you have ever spoken to someone that faces criminal indictment by a federal grand jury following a Justice Department antitrust investigation, you know why antitrust compliance counseling and training is a big deal—you don’t need reasons; hearing the crackle of the voice is enough to understand.

You might think that an antitrust investigation or lawsuit may not happen to you or your company. Perhaps you think that your company is too small or that since you don’t sit in smoke-filled rooms with many of your competitors laughing about your customers—or whatever image from books or movies is in your head, antitrust isn’t something you need to worry about.

You might be wrong. Are the chances great that you will be prosecuted or sued under the antitrust laws? Since you are reading a blog about antitrust, they are greater than average, but even still, the odds are relatively low.

But even if the likelihood of an adverse antitrust event is low, the consequences may be so extreme that it is something you should think about. You don’t anticipate that your house is going to burn down, but you—hopefully—take some precautions and probably have some sort of fire protection as part of your homeowner’s insurance.

With antitrust, a little knowledge can go a long way.

If you have an antitrust issue, it is not likely to be a small issue. Indeed, it may start with a government investigation, but could progress into dozens of antitrust class actions against your company.

As you might know, there is a cottage industry of plaintiff attorneys that read SEC filings and watch for government antitrust investigations. When they see something that raises the possibility of an antitrust violation, they pounce. Attorneys all over the country file lawsuits in their home jurisdictions against the target company—which could be your company if you aren’t careful. I go into more detail about this “antitrust blizzard” here.

Antitrust issues can arise for big and small companies and even individuals—like real-estate investors. If you don’t think your company is susceptible to antitrust liability or indictment, I’d like you to read one of my early blog posts that explains how easily a per se antitrust violation can happen.

The Federal Trade Commission even went after an association of music teachers for potentially violating the antitrust laws.

What is tough about antitrust is that the laws are not always intuitive; it isn’t like a law that says “don’t steal.” In fact, in one instance, the antitrust laws encourage you to try to steal.

Sometimes the law isn’t even altogether clear. Of course, you are unlikely to face criminal indictment over complicated questions of whether a bundle of products sold by a company with market power violates the antitrust laws. Or whether your vertical pricing arrangements went beyond Colgate policy protections. But you could face criminal antitrust penalties for allocating markets and customers and that isn’t obvious to all sales people.

The bottom line is that if you run or help to manage a company—and especially if your company has a sales team—you need some knowledge of the antitrust laws. At the very least, you should understand what to train your team members to avoid. Antitrust training can be invaluable.

You might also enjoy our article on Antitrust Compliance Programs in the US and European Union.

Antitrust compliance training and programs are even more important now that the US Department of Justice has announced that they will take these programs into account in their charging decisions.

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Author: Jarod Bona

When you think about Sherman Act Section 1 antitrust cases (the ones involving conspiracies), you usually consider the question—often framed at the motion to dismiss stage as a Twombly inquiry—whether the defendants actually engaged in an antitrust conspiracy.

But, sometimes, the question is whether the defendants are actually capable of conspiring together.

That isn’t a commentary on the intelligence or skills of any particular defendants, but a serious antitrust issue that can—in some instances—create complexity.

So far I’ve been somewhat opaque, so let me illustrate. Let’s say you want to sue a corporation under the antitrust laws, but can’t find another entity they’ve conspired with so you can invoke Section 1 of the Sherman Act (which requires a conspiracy or agreement). How about this: You allege that the corporation conspired with its President, Vice-President, and Treasurer to violate the antitrust laws. Can you do that?

Probably not. In the typical case, a corporation is not legally capable of conspiring with its own officers. The group is considered, for purposes of the antitrust laws, as a “single economic entity,” which is incapable of conspiring with itself. Of course, the situation is complicated if we aren’t talking about the typical corporate officers, but instead analyzing a case with a corporation and corporate agents (or perhaps in a rare case, even employees) that are acting for their own self-interest and not as a true agent of the corporation. The question, often a complex one, will usually come down to whether there is sufficient separation of economic interests that the law can justify treating them as separate actors.

A lot of tricky issues can arise when dealing with companies and their subsidiaries as well. In Copperweld Corp. v. Independence Tube Corporation, for example, the United States Supreme Court held that the coordinated activities of a parent and its wholly-owned subsidiary are a single enterprise (incapable of conspiring) for purposes of Section 1 of the Sherman Act.

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Author: Aaron Gott

My morning routine usually begins with reading the news to keep up on current events. As an antitrust lawyer, I often find myself thinking about how stories that were deemed newsworthy for other reasons fail to recognize their often most troubling aspects: the antitrust concerns.

Last week, for example, the news was abuzz with Uber and Lyft drivers going “on strike” to protest their compensation from the companies. The drivers “banded together” in an effort to pressure the companies. Most might see this as a sort of unionization of the gig economy. But I saw it as an antitrust problem: ride referral drivers are independent contractors, so they are not, under well-established federal law, entitled to the union labor exemption from the antitrust laws. They are horizontal competitors who are agreeing to restrain trade. That sort of conduct is called a group boycott, and under these circumstances, it might be per se illegal under Section 1 of the Sherman Act.

Law Library Books

Author: Jarod Bona

Law school exams are all about issue spotting. Sure, after you spot the issue, you must describe the elements and apply them correctly. But the important skill is, in fact, issue spotting. In the real world, you can look up a claim’s elements; in fact, you should do that anyway because the law can change (see Leegin and resale price maintenance).

And outside of a law-school hypothetical, it typically isn’t difficult to apply the law to the facts. Of course, what I like about antitrust is that the law evolves and is often unclear and applying it (whatever it is) challenges your thinking. Sometimes, you even need to ask your favorite economist for some help.

Anyway, if you aren’t an antitrust lawyer, it probably doesn’t make sense for you to advance deep into the learning curve so you are an expert in antitrust and competition doctrine. It might be fun, but it is a big commitment to get to where you would need to be, so you should consider devoting your extra time instead to something like CrossFit.

But you should learn enough about antitrust so you can spot the issues. This is important because you don’t want your company to violate the antitrust laws, which could lead to jail time, huge damage awards, and major costs and distractions. And as antitrust lawyers, we often counsel from this defensive position.

It is fun, however, to play antitrust from the offensive side of the ball. That is, utilize the antitrust laws to help your business. To do that, you need a rudimentary understanding of antitrust issues, so you know when to call us. Bona Law represents both plaintiffs and defendants in antitrust litigation of all sorts.

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