Presenting a live 90-minute webinar with interactive Q&A Detecting Antitrust Red Flags in Business Dealings: Avoiding Costly Pitfalls Identifying Potential Violations in Competitor, Supplier and Customer Interactions and Business Decisions TUESDAY, AUGUST 26, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Justin W. Bernick, Hogan Lovells US , Washington, D.C. Jarod M. Bona, Founder, Bona Law , La Jolla, Calif. Ryan W. Marth, Principal, Robins, Kaplan, Miller & Ciresi , Minneapolis The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Detecting Antitrust Red Flags in Business Dealings: Avoiding Costly Pitfalls Justin W. Bernick Hogan Lovells US justin.bernick@hoganlovells.com Jarod M. Bona Bona Law jarod.bona@bonalawpc.com Ryan W. Marth Robins, Kaplan, Miller & Ciresi rwmarth@rkmc.com
Overview 6 • This is a simplified bullet-point presentation that is not intended to make you an expert. • When in doubt, consult the legal department or qualified outside counsel.
US Antitrust Basics 7 • Sherman Act, Section 1: Prohibits certain agreements and understandings between competitors, customers and suppliers, or other firms with business relationships • Sherman Act, Section 2: Prohibits certain conduct by a monopolist or by someone attempting to become a monopolist and certain other forms of unilateral conduct • Clayton Act: ‒ Section 3: Prohibits anticompetitive conditions on the sale of goods, including “tying” and some exclusive dealing. ‒ Section 7: Governs mergers and acquisitions. • FTC Act: Prohibits unfair methods of competition and unfair acts and practices. • State Antitrust Acts: Often follows federal antitrust laws, but there can be some variation.
Section 1 Flowchart Agreement? 8 Yes No Sherman Act 1 Sherman Act 2 Horizontal Vertical Per Se (price- Rule to Reason fixing, market allocation, etc.) Market Power / No Market Harm to Power / No Competition Harm to Naked Cartel? Competition Criminal Penalties Restraint Necessary for Procompetitive No Benefit? Yes Civil Liability No Liability (Treble Damages)
Evidence of a “Conspiracy” Under Section 1 9 • Contract • Direct Evidence • Circumstantial Evidence ‒ Circumstances must reveal “a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement” 328 U.S. 781, 810 (1946) ‒ When circumstantial evidence is used, there must be some evidence that "tends to exclude the possibility" that the alleged conspirators acted independently. Monsanto Co. v. Spray-Rite Service Corp ., 465 U.S. 752, 764 (1984) • Parallel pricing plus “plus factors” • Price signaling / information exchanges • Joint Ventures – Do participants deprive the marketplace of independent decisionmaking?
Distinguishing horizontal from vertical agreements 10 • Horizontal agreement – agreement among firms at the same level of production (competitors or potential competitors) • Vertical agreement – agreement among firms at different levels of production (manufacturer and wholesaler / wholesaler and retailer)
Distinguishing Horizontal from Vertical Agreements: Hybrid Agreements 11 • “Hub and Spoke” agreement has elements of both horizontal and vertical agreements. ‒ “Ringleader” is the dominant purchaser or supplier who enters into a series of agreements with the distributors or “spokes” ‒ In order to prove a hub-and-spoke conspiracy, one must establish evidence of the “rim,” i.e., horizontal agreements among the spokes.
Distinguishing Horizontal from Vertical Agreements 12 Toys R Us v. FTC, 221 F.3d 928 (7th Cir. 2000) • Toys ''R'' Us had used its dominant position as toy distributor to extract agreements from and among toy manufacturers to stop selling to warehouse clubs the same toys that they had sold to other toy distributors. • Toys ''R'' Us denied there was sufficient evidence to prove a horizontal conspiracy among the toy manufacturers, with itself as the ringmaster. It was possible that each manufacturer had an independent motive to stop selling the warehouse clubs and this possibility had not been disproven. The court disagreed, citing testimony from toy company executives and Toys ''R'' Us that each toy manufacturer would agree to Toys ''R'' Us's demands only if its competitors were doing the same. Thus, there was sufficient circumstantial evidence that excluded the possibility that the conspirators acted independently.
Distinguishing Horizontal from Vertical Agreements 13 United States v. Apple (e-books) , No. 12 Civ. 2826 (Jul. 10, 2013) • Amazon launches successful e-book platform, driving down publishers’ royalties. • When launching iPad, Apple persuades publishers to adopt “agency” model, preserving their profits. • Apple insists on MFN with respect to competitors, restricting Amazon’s ability to offer lower -priced product • Emails/Communications from Apple assuring publishers that others were on board. • Court found after trial that Apple facilitated a per se illegal agreement.
Per Se Violation or Rule of Reason? 14 • Liability for “per se” violations is established upon proof of the agreement. ‒ Generally reserved for conduct that courts have significant experience with. ‒ Types of “per se” illegal conduct include price fixing, bid rigging, and market allocation. ‒ Herein lie the “landmines” for counselors. • Rule of Reason applies to vast majority of cases: “where the economic impact of certain practices is not immediately obvious.” ‒ Rule of reason requires proof of harm to competition in a relevant market. ‒ But rule of reason “does not open the field of antitrust inquiry to any argument in favor of a challenged restraint that may fall within the realm of reason.”
Most Common Per Se Violations 15 • Price and volume agreements : Includes price or any price components, including discounts, promotions, credit or other terms, allowances, advances, mark-ups, costs, margins, or price ranges. • Market Allocation . Agreements among competitors about where to sell, what products to sell, and whom to sell to. • Group Boycott. Agreements to not deal with potential customers, or to jointly insist upon certain terms • Bid Rigging. Collusive bidding practices.
Rule of Reason 16 • Most conduct falls into this category. • Virtually all vertical conduct is judged under the rule of reason. • Courts will balance the pro-competitive benefits against any anticompetitive harm. • Quick Look review: Between rule of reason and per se review. Courts are increasingly applying standards that are neither pure per se or pure rule of reason.
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