The Federal Trade Commission has published its annual revision of the interlocking directorate thresholds under Section 8 of the Clayton Act. The new, slightly higher thresholds are effective as of today, March 4, 2019.
Section 8 prohibits a “person” from serving as an officer or director of corporations that compete with one another in the marketplace, except where that competition is very limited. Section 8 also applies where two different individuals represent the same company but serve on competitors’ boards.
The existence of an interlock prohibited by Section 8 is a per se violation – which means that no defenses may be offered where an illegal interlock is established. It is therefore important to be cognizant of any potential Section 8 issue as well as the current applicable thresholds.
Under the updated thresholds for 2019, a “person” cannot serve as officer or director of any two corporations if:
- the “capital, surplus, and undivided profits” of each corporation exceeds $36,564,000; and
- the corporations are competitors “by virtue of their business and location of operation.”
Section 8 does, however, provide exceptions to this general rule. Even where the above elements are satisfied, an interlock is allowed if:
- the competitive sales of either corporation are less than $3,656,400; or
- the competitive sales of either corporation are less than 2% of the corporation’s total sales; or
- the competitive sales of each corporation are less than 4% of that corporation’s total sales.
A Section 8 enforcement action may be brought by the federal antitrust agencies, but there is also a private right of action for Section 8 claims. Companies and individuals should, therefore, keep Section 8 considerations in mind when considering the appointment or undertaking of an officer or director position, and in evaluating current positions.