Articles Posted in Resale Price Maintenance

Golden Gate Bridge California

Author: Jarod Bona

In an earlier blog post, we discussed Leegin and the controversial issue of resale-price maintenance agreements under the federal antitrust laws. We’ve also written about these agreements here. As you might recall, in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (Kay’s Closet), the US Supreme Court reversed a nearly 100-year-old precedent and held that resale-price maintenance agreements are no longer per se illegal. They are instead subject to the rule of reason.

But what many people don’t consider is that there is another layer of antitrust laws that govern market behavior—state antitrust law. Several years ago during my DLA Piper days, I co-authored an article with Jeffrey Shohet about this topic. In many instances, state antitrust law directly follows federal antitrust law, so state antitrust law doesn’t come into play. (Of course, it will matter for indirect purchaser class actions, but that’s an entirely different topic).

For many states, however, the local antitrust law deviates from federal law—sometimes in important ways. If you are doing business in such a state—and many companies do business nationally, of course—you must understand the content and application of state antitrust law. Two examples of states with unique antitrust laws and precedent are California, with its Cartwright Act, and New York, with its Donnelly Act.

California and the Cartwright Act

This blog post is about California and the Cartwright Act. Although my practice, particularly our antitrust practice, is national, I am located in San Diego, California and concentrate a little extra on California. Bona Law, of course, also has a New York office.

As I’ve mentioned before, the Supreme Court’s decision in Leegin to remove resale-price maintenance from the limited category of per se antitrust violations was quite controversial and created some backlash. There were attempts in Congress to overturn the ruling and many states have reaffirmed that the agreements are still per se illegal under their state antitrust laws, even though federal antitrust law shifted course.

The Supreme Court decided Leegin in 2007. It is 2018, of course. So you’d think by now we would have a good idea whether each state would follow or depart from Leegin with regard to whether to treat resale-price maintenance agreements as per se antitrust violations.

But that is not the case in California, under the Cartwright Act. Indeed, it is an open question.

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Author: Luis Blanquez

On July 24, 2018, the European Commission fined manufacturers Asus, Denon & Marantz, Philips and Pioneer for over €111 million for restricting the ability of online retailers to set their own retail prices for a variety of widely-used consumer electronics products.

Background

Colgate Doctrine

Author: Jarod Bona

As an antitrust attorney with an antitrust blog, my phone rings with a varied assortment of antitrust-related questions. One of the most common topics involves resale-price maintenance. “Resale price maintenance” is also one of the most common search terms for this blog.

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 inquiries for two reasons: First, it is something that a comparatively large number of companies need to 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 can review my blog post on Leegin and federal antitrust law here, and you can read my post about resale-price maintenance under state antitrust laws here.

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 the minor exception of the refusal-to-deal doctrine—have no general antitrust-law obligation to do business with any particular company and can thus unilaterally terminate distributors without antitrust consequences (in most instances; please consult an antitrust attorney).

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.

Update: You can now read this article translated to French at Le Concurrentialiste.

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Resale Price Maintenance

Author: Jarod Bona

Some antitrust questions are easy: Is naked price-fixing among competitors a Sherman Act violation? Yes, of course it is.

But there is one issue that is not only a common occurrence but also engenders great controversy among antitrust attorneys and commentators: Is price-fixing between manufacturers and distributors (or retailers) an antitrust violation? This is usually called a resale-price-maintenance agreement and it really isn’t clear if it violates the antitrust laws.

For many years, resale-price maintenance—called RPM by those in the know—was on the list of the most forbidden of antitrust conduct, a per se antitrust violation. It was up there with horizontal price fixing, market allocation, bid rigging, and certain group boycotts and tying arrangements.

There was a way around a violation, known as the Colgate exception, whereby a supplier would unilaterally develop a policy that its product must be sold at a certain price or it would terminate dealers. This well-known exception was based on the idea that, in most situations, companies had no obligation to deal with any particular company and could refuse to deal with distributors if they wanted. Of course, if the supplier entered a contract with the distributor to sell the supplier’s products at certain prices, that was an entirely different story. The antitrust law brought in the cavalry in those cases.

You can read my blog post about the Colgate exception here: The Colgate Doctrine and Other Alternatives to Resale-Price-Maintenance Agreements.

In 2007, the Supreme Court dramatically changed the landscape when it decided Leegin Creative Leather Products, Inc. v. PSKS, Inc. (Kay’s Closet). The question presented to the Supreme Court in Leegin was whether to overrule an almost 100-year old precedent (Dr. Miles Medical Co.) that established the rule that resale-price maintenance was per se illegal under the Sherman Act.

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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; that is the last thing you want to experience.

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 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) really 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 by 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.

You can read more about Leegin and how courts analyze these agreements in our prior article. 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.

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Author: Jarod Bona

We see many antitrust issues in the distribution world—and from all business perspectives: supplier, wholesale distributor, authorized retailer, and unauthorized retailer, among others. And at the retail level, we hear from both internet and brick-and-mortar stores.

The most common distribution issues that come up are resale-price-maintenance (both as an agreement and as a Colgate policy), terminated distributors/retailers, and Minimum Advertised Pricing Policies or MAP.

Today, we will talk about MAP Policies and how they relate to the antitrust laws.

What is a Minimum Advertised Price Policy (more commonly known as a MAP policy)?

A MAP policy is one in which a supplier or manufacturer limits the ability of their distributors to advertise prices below a certain level. Unlike a resale-price-maintenance agreement, a MAP policy does not stop a retailer from actually selling below any minimum price.

In a resale price maintenance policy or agreement, by contrast, the manufacturer doesn’t allow distributors to sell the products below a certain price.

As part of a “carrot” for following MAP policies, manufacturers often pair the policy with cooperative advertising funds for the retailer.

The typical targets of a MAP policy are online retailers. These policies also do not typically restrict in-store advertising. The manufacturers that employ MAP policies are usually the ones that emphasize branding in their corporate strategy or have luxury products and fear that low listed prices for those products will make them seem less luxurious. But these policies exist in many different industries.

In any event, MAP policies are accelerating in the marketplace. Indeed, brick and mortar retailers that fear “showrooming,” will often pressure manufacturers to implement either vertical pricing restrictions or MAP policies.

Do MAP Policies Violate the Antitrust Laws?

MAP policies don’t—absent further context—violate the antitrust laws by themselves. But, depending upon how a manufacturer structures and implements them, MAP policies could violate either state or federal antitrust law. So the answer is the unsatisfying maybe.

But we can add further context to better understand the level of risk for particular MAP policies.

There is some case law analyzing MAP policies, but it is limited, so if you play in this sandbox, you can’t prepare for any one approach. I had considered going through the cases here, but I think that has limited utility.  The fact is that there isn’t a strong consensus on how courts should treat MAP policies themselves. So the best tactic is to understand the core competition issues and make your risk assessments from that.

In any event, you will need an antitrust attorney to help you through this, so the best I can do here for you to is to help you spot the issues and understand if you are moving in the right direction.

If you are familiar with resale price maintenance or Colgate policies, you will notice a lot of overlap with MAP policy issues. But there are important differences.

A minimum advertised price policy is not strictly a limit on pricing. From a competitive standpoint, that helps, but not necessarily a lot. The reality is that a MAP policy can be—for practical reasons—a significant hurdle for online distributors to compete on price for the restricted product. That is, for online retailers, sometimes the MAP policy price is the effective minimum price.

Resale Price Maintenance

Before we go further, let’s review a little bit. A resale price maintenance agreement is a deal between a manufacturer and some sort of distributor (including a retailer that sells to the end user) that the distributor will not sell the product for less than a set price. Up until the US Supreme Court decided Leegin in 2007, these types of agreements were per se illegal under the federal antitrust laws.

Resale price maintenance agreements are no longer per se federal antitrust violations, but several states, including California and New York, may consider them per se antitrust violations under state law, so most national manufacturers avoid the risk and implement a unilateral Colgate policy instead.

Under federal law, courts usually analyze resale-price-maintenance agreements under the antitrust rule of reason.

Colgate Policies

Colgate policies are named after a 1919 Supreme Court decision that held that it is not a federal antitrust violation for a manufacturer to unilaterally announce in advance the prices at which it will allow its product to be resold, then refuse to deal with any distributors that violate that policy. You can read our article about Colgate policies here.

The bottom line with Colgate is that in most situations the federal antitrust laws do not forbid one company from unilaterally refusing to deal with another. There are, of course, exceptions, so don’t rely on this point without consulting an antitrust lawyer.

Back to MAP Policies and Antitrust

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Author: Luis Blanquez

In our prior article, we discussed the European Commission’s final report of its study of the EU’s e-commerce market for consumer goods and digital content.

In this article we describe EU investigations and enforcement actions that arose from the EC’s final e-commerce market study. While the final report itself offers companies doing business in the EU helpful guidance, the Commission’s actual conduct is perhaps an even better indicator of how the EC will implement what it learned.

Since the European Commission published its Final Report, it has opened investigation of about 20 companies.

Below is a summary of the relevant cases that the EC recently opened. We expect additional cases in the future in this area, both at EU and national level.

Geo-blocking cases

Video Games

On February 2, 2017, the EC opened an investigation to analyze bilateral agreements between Valve Corporation, owner of the Steam game distribution platform, and five PC video game publishers:  Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax.

This investigation concerns geo-blocking practices, where companies prevent consumers from purchasing digital content, in this case PC video games, because of the consumer’s location or country of residence.  After the purchase of certain PC video games, users need to confirm that their copy of the game is not pirated to be able to play it.  This is done with an activation key.

The investigation focuses on whether such agreements require the use of activation keys for the purpose of geo-blocking.

Clothing Company, Guess

On June 6, 2017, the EC opened an investigation against clothing manufacturer Guess.  The EC is analyzing whether Guess’s distribution agreements impose cross-border sales restrictions on (i) retailers making online sales to consumers in other Member States, (ii) or wholesalers, selling to retailers in other Member States.

Interestingly, as a result, other clothing manufacturers such as Mango, Oysho and Pull&Bear have now started to review and revise their distribution agreements.  Other companies, such as coffee machine manufacturer De Longhi, and photo equipment manufacturer Manfrotto, are doing the same (See here).

Hotel Pricing Discrimination

On February 2, 2017, the EC opened another investigation into hotel accommodation agreements between the largest European tour operators on the one hand: Kuoni, REWE, Thomas Cook and TUI, and Meliá Hotels on the other hand.

The EC encourages hotels to develop and introduce innovative pricing mechanisms to maximize room usage.  But the EC is concerned that these agreements may contain clauses that discriminate among customers based on their nationality or country of residence.  As a result, customers may not be able to see the full hotel availability, or book hotel rooms at the best prices, simply because of the consumer’s nationality or place of residence.

Licensed Merchandising Products

On June 14, 2017, the EC opened more investigations into the licensing and distribution practices of Nike, Sanrio and Universal studios.  These three companies license intellectual property rights to manufacturers of merchandising products such as the Fútbol Club Barcelona, Hello Kitty and Minions merchandise, respectively.

The EC is concerned that these companies, in their role as licensors of rights for merchandising products, may have restricted the ability of their licensees to sell licensed merchandise cross-border and online.

Resale Price Maintenance cases

Consumer electronics manufacturers

The EC has opened another investigation against Asus, Denon & Marantz, Philips and Pioneer.  In this case, the EC is concerned that the companies involved might be restricting the ability of online retailers to set their own prices for widely used consumer electronics products such as household appliances, notebooks and hi-fi products.

This is the first resale price maintenance case that the EC has initiated in a long time.  Instead, the Member States themselves have scrutinized resale price maintenance at national level during the last decade.

Germany, for example, has recently published a new guidance note on resale price maintenance. The Competition and Markets Authority (“CMA”) in the UK also published additional guidance on these types of pricing agreements in the form of an open letter, a film, a 60-second summary, and  case studies.

Indeed, the CMA recently fined National Lighting Company (NLC), a light fittings supplier, £2.7 million for restricting online prices. They also sent out warning letters to others in the industry.  In 2016, the CMA also fined two other online companies for resale price maintenance practices: Ultra Finishing Limited (“Ultra”) in the Bathroom fittings sector and ITW Limited in the commercial refrigeration sector.

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Author: Luis Blanquez

  1. BACKGROUND

Over the past two years, the European Commission (“EC”) has been scrutinizing the e-commerce market of consumer goods and digital content in the European Union.  This is a key step on the Commission’s Digital Single Market strategy to improve access to digital goods and services.

Such strategy includes legislation to promote cross border e-commerce through the following:

In May 2015, the EC started in parallel its Sector Inquiry to identify possible competition concerns affecting European e-commerce markets.  Its main purpose was to gather information on companies’ conduct and barriers to cross-border online trade, looking at online sales of consumer goods and digital content.  In September 2016, the EC published a report with its preliminary findings, together with a Staff Working Document.

Finally, in May 2017, the EC issued its Final Report.

You can read our follow-up article to this one about ongoing EC enforcement actions arising out of the E-Commerce Report.

You might also enjoy our articles on EU dominance abuse and antitrust compliance programs in the US and EU.

  1. RELEVANT FINDINGS

The EC outlines in the Final Report what it considers as the key issues in the field of e-commerce.  It acknowledges the changing characteristics and fast-growing tendency of a sector with an increasing economic role in today’s economy. It further identifies business practices and barriers that could restrict competition and limit consumer choice.

The EC reviewed more than 2,600 agreements concerning the distribution of goods in the EU, and received more than 6,800 licensing agreements from digital content providers and rights holders.  The main findings in the Final Report differentiate between consumer goods and digital content.

(A) CONSUMER GOODS

Contractual Restrictions on Cross-Border Sales: Geo-Blocking

The Sector Inquiry identifies contractual restrictions between operators in the online market that the EC believes could cause problems.  Unilateral decisions by non-dominant firms, however, fall outside the scope of EU competition law.

But before telling you which contractual restrictions are problematic, let me explain first what the term “geo-blocking” means.  Basically, it refers to practices that prevent cross-border sales in the EU.  These include the following:

  • Blocking access to websites by users located in another Member State—for example when a customer located in Madrid tries to acquire a product via a French website, and is prevented from doing so because the website has been blocked due to its Spanish IP address;
  • Automatic re-routing of a customer to another website of the same or a different service provider—for example when a customer located in Madrid trying to access a French website is directly re-routed to the company’s Spanish website; or
  • Payment refusals based on the place of residence of the customer—for example when the payment to the French website is refused because the credit card used is linked to an address in Spain, or the delivery to Spain is denied based on the customer’s residence.

So back to the relevant contractual restrictions now:  The EC is concerned about how retailers face contractual restrictions from suppliers, which prevent such cross-border selling on-line.

These questioned agreements are ones that (i) are not covered by the EC “safe harbor” under the Vertical Block Exemption Regulation (“VBER”) – this is if parties to the agreements have market shares above 30%, or there are hardcore restraints involved, (ii) preventing cross-border sales between Member States in distribution agreements, may infringe EU Competition rules.

Restrictions on the use of online marketplaces

An online marketplace is a website that facilitates shopping from different sources, such as Amazon or eBay.

An absolute ban on online selling is considered a hard-core restriction under EU law.  There is, however, an important ongoing debate in Europe as to whether an absolute ban on selling via marketplaces is contrary to EU rules.

In Germany, the Bundeskartellamt issued an infringement decision against Asics on its ban to sell via online marketplaces. In April 2017, the Dusseldorf Regional Higher Court found that only the price comparison tool restrictions involved in the case were anticompetitive.

At EU level there are currently two preliminary rulings pending.  One the Coty case, where the high EU court has been asked to analyze the restrictions imposed on a selective distribution agreement by manufacturer Coty on one of its authorized distributors to sell products via third party online platforms. The second one is the Samsung and Amazon case, concerning a ban on resale outside a selective distribution network and on a marketplace, by means of online offers on several websites operating in various Member States.

In its Final Report, the EC does not consider marketplace selling bans as hardcore restraints.  It may, however, still scrutinize them on a case by case basis, if parties to the agreements have market shares above 30%, or there are hardcore restraints involved, according to the VBER.

Selective distribution agreements: Requirements for brick-and- mortar shops

Contractual requirements to operate at least one brick-and-mortar shop under a selective distribution agreement are compatible with the EU competition rules, as long as they are linked to quality or brand image.

The EC, however, states in its Final Report that brick-and-mortar shop requirements imposed for the sole purpose to exclude online operators from the market, may infringe EU competition rules.

Pricing restrictions: Resale Price Maintenance (“RPM”) and Price collusion

E-commerce has significantly increased price transparency, competition on price and opportunities for users to compare different options in the internet.  According to the EC’s investigation, almost 30% of manufacturers systematically track resale prices: 67% track resale prices manually, whereas 38% use specific software (spiders).

The Final Report highlights that this may also increase the risk of RPM or collusion between competitors.

Resale Price Maintenance (RPM)

The imposition of minimum resale prices is considered a hardcore restriction under EU Competition law.  Similarly, when manufacturers seek to enforce compliance with recommended prices through contractual restrictions or some form of coercion, they may also infringe competition rules.

The EC is concerned that online price transparency may facilitate such practices, making it easier for manufacturers to detect deviations and enforce RPM provisions.

You can read articles on The Antitrust Attorney Blog on Resale Price Maintenance here.

Price collusion

Price fixing between competitors is considered one of the most serious infringements under EU competition rules.

The Final Report found that almost 50% of retailers track online prices of competitors, and 78% of them use software to monitor rivals’ prices, adjusting their own prices accordingly.

The EC is thus concerned that price monitoring may facilitate or strengthen collusion between retailers, by making the detection of deviations from the collusive agreement easier, while allowing them to counteract by adjusting their prices.

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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.

But in most instances—even where the client’s idea create 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 almost completely 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.

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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