On July 14, The Department of Justice announced that two providers of electronic brokerage services restructured their $1.5 billion transaction after the Department expressed Clayton Act Section 8 concerns. This underscores the antitrust risks arising from interlocking boards between corporations that could reasonably be considered as competitors. Section 8 compliance is an increasing legal feasibility issue with certain types of governance arrangements arising in the rapidly consolidated health care industry.
In general, Section 8 of the Clayton Act prohibits a person from serving as a director or board-elected or board-appointed officer of two competing corporations whose profits and amount of competing revenues exceed inflation-adjusted statutory thresholds. The primary purpose of Section 8 is to prevent harm to competition by removing the opportunity or temptation to violate the antitrust laws through the interlock. Private parties may bring an action to enforce Section 8. The principle remedy for a violation of Section 8 is removal of the interlocking directors or officers (injunctive relief). As originally structured, the transaction that was the subject of the Department’s July 14 announcement would have created an interlocking governance arrangement between two competitors, where one organization had the authority to nominate one member of the other organization’s governing board. The transaction was ultimately restricted to eliminate the director nomination right (and a related 20 percent ownership interest by one organization in the other).
This announcement demonstrates DOJ’s interest in enforcing Section 8 where necessary to prevent “a cozy relationship amongst competitors.” Of course, the application of Section 8 depends upon the facts and circumstances of particular arrangements and the extent to which they meet certain statutory thresholds. This is particularly the case as concepts of what constitutes “competition” may evolve, given the increasing scope of operations of many health systems, and the growing diversity of their business operations. The general counsel may wish to use this new DOJ action to remind her colleagues who structure business transactions and governance relationships between corporations (that could plausibly be considered to compete with each other) to pro-actively consider the potential Section 8 implications of those proposed transactions and relationships.