The U.S. Department of Justice Antitrust Division ("DOJ”) announced that it is investigating director interlocks with a specific focus on "accounting for modern corporate structures." Interlocks have attracted relatively little attention in recent years, but that may soon change.
Section 8 of the Clayton Act, the interlock statute, prohibits a person from simultaneously serving as an officer or director of two competing corporations that meet specified size thresholds unless certain de minimis exceptions apply. The concern under Section 8 is that a common officer or director could coordinate business decisions and exchange competitively sensitive information between those competitors. The statute authorizes the DOJ and Federal Trade Commission ("FTC") to seek injunctive relief for such violations, and private plaintiffs can seek damages, though no court appears to have awarded damages. In most cases, companies can remedy an interlock with a voluntary resignation.
For example, in 2009, the FTC investigated Google and Apple regarding an interlock; this was resolved after a common member resigned from Google’s board and Google’s CEO resigned from Apple’s board. In 2016, Tullett Prebon and ICAP restructured their transaction to eliminate interlock concerns raised by the DOJ.
In a recent speech, Assistant Attorney General Makan Delrahim said the term "corporation" in the statute raises questions about its application to "unincorporated entities" such as limited liability companies or other structures. DOJ believes the same competitive harms can result from dealings with competitors regardless of the corporate form and noted that courts have not yet addressed whether Section 8 applies to unincorporated entities. Delrahim observed that both the DOJ and FTC review mergers and conduct matters without regard to corporate form and "are thinking about how to bring this thinking to Section 8 as well." The FTC also has authority under Section 5 of the FTC Act to challenge an interlock (and it has done so under Section 5), even if an interlock does not meet Section 8’s statutory requirements.
In other recent speeches, DOJ’s senior leadership indicated that the DOJ is reviewing common ownership and interlocking directorates more closely, especially in concentrated markets where interlocks may increase the risk of coordination. Given this renewed DOJ interest, companies that have not reviewed their board of director policies and member composition for Section 8 compliance should do so.