On 1 May 2019 Assistant Attorney General Makan Delrahim suggested that antitrust enforcers should update their analytical framework to account for modern corporate structures, signalling the potential for antitrust violations when officers and directors serve multiple competing companies.
Section 8 of the Clayton Act prohibits 'interlocking directorships' (ie, the practice of serving as an officer or director of competing corporations) if the corporations are competitors "by virtue of their business and location of operation", unless certain exemptions apply. However, as Delrahim noted, the Clayton Act was passed well before modern entities such as limited liability companies (LLCs) existed and applies only to corporations.
Although the courts have not addressed whether Section 8 should apply to LLCs, Delrahim stated that the Antitrust Division "believe[s] the harm can be the same regardless of the form of the entities". Currently, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) do not factor in corporate structures when analysing the potential anti-competitive effects of a proposed merger or conduct matter. Given this existing framework, Delrahim stated that the DOJ is considering "how to bring this thinking to Section 8 as well".
Delrahim also cautioned institutional investors from coordinating conduct between competing firms in which they have investments. His statements follow recent scholarship which suggest that common minority ownership by institutional investors could lessen competition. Under one theory, institutional investors could harm competition through overt action – for example, an investor may call the competitors that it owns and discourage them from competing in violation of Section 1 of the Sherman Act. Alternatively, the directors of the various competitors who share an institutional investor may be incentivised to charge monopolistic prices in order to maximise profits and ensure that the directors will not lose their seat on the board.
Delrahim's speech is a reminder that even behaviour that is not explicitly prohibited by the letter of the antitrust statutes may still raise eyebrows at the DOJ, the FTC and state attorneys general. Companies of all legal forms should monitor the external officer, director and equivalent positions of their management and director teams to avoid being embroiled in antitrust investigations or litigation relating to potential interlocks.
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