In this challenging economic environment, antitrust law will continue to play an important role. The risks of illegal anticompetitive conduct still remain, but antitrust law will not stand in the way of acquisitions, joint ventures, and other business strategies that promote competition. This is no time to abandon effective antitrust compliance. At the same time, there may well be legitimate and lawful ways to address truly distressed market conditions.
- Government Policing and Prosecution of Cartels Will Not Slacken, No Matter What the Economic Situation
Congress has not enacted any "crisis-period" exemption from the antitrust laws, no matter what one reads about the Troubled Asset Recovery Program, or a potential fiscal stimulus package. The Antitrust Division has not discharged its many grand jury investigations (the Division had 135 pending grand jury investigations, including more than 50 investigations of suspected international cartel activity, at the end of its fiscal year 2007); or stopped bringing price-fixing cases; or announced in policy statements that it will take a pass on cartel conduct because times are tough.
Anti-cartel enforcement will continue to be the first priority of government antitrust enforcement. Antitrust offenders will continue to be sent to prison and corporations will continue to pay substantial fines.
Distressed market conditions will not be a defense -- a "get out of jail free card" -- for companies found to be fixing prices, rigging bids or dividing customers or territories.
For beleaguered executives -- faced with substantially reduced profits, excess capacity, drastic employee layoffs and hammered stock prices -- the temptation may be great to "work out" the situation with their competitors by bringing "order" to the market, through price-fixing agreements that will "bring discipline" to the market "for the good of the industry."
These motives are not defenses to price fixing and were rejected by the courts even under the far more severe conditions of the Great Depression. Indeed, many price fixing cases have been brought in industries where prices and profits have been falling, executives have sought to stem price competition through illegal agreements, and distressed conditions have been recognized as a motive for the conspiracy. One of the most famous antitrust price-fixing decisions, United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940), arose in the context of Depression-era distress gasoline prices, and it did not matter to the Supreme Court that industry economic conditions were drastically deteriorating. See also United States v. Sugar Inst., 297 U.S. 553 (1936) (outlawing an agreement to adhere to previously announced prices, where firms believed the " industry was characterized by highly unfair and otherwise uneconomic competitive conditions" and "arbitrary, secret rebates and concessions were extensively granted").
It is also important to keep in mind that "solicitations to collude" (even if they do not result in agreements) have been challenged by the enforcement agencies.
- While Legitimate Joint Ventures May Pass Antitrust Muster, the Label "Joint Venture" Will Not Protect Agreements that are Nothing More Than a Cover for Efforts to Coordinate Decisions on Pricing, Product Design and Other Elements of Competition
Antitrust law and the antitrust authorities recognize that there are legitimate agreements among competitors, including joint ventures, that can foster competition by increasing output, lowering prices, reducing costs or stimulating innovation. However, the label "joint venture" will not protect agreements that are nothing more than naked restraints on competition.
- Aggressive Business Practices of Firms with Strong Market Positions May Attract Antitrust Challenges from Ailing Rivals
Antitrust law prohibits certain exclusionary business practices (e.g., predatory pricing, bundled rebates, exclusive dealing, tying) that enhance or entrench market power. In the current environment, smaller or weaker firms in an industry may respond to market strategies by their larger rivals that appear to worsen their position by seeking redress in the courts. They may view such an aggressive antitrust attack as necessary, since their viability or existence is at stake.
Distinguishing between lawful, aggressive competition (which the antitrust laws are designed to promote) and anticompetitive exclusionary conduct is often challenging. Indeed, there is significant disagreement on the appropriate standards for judging such conduct among commentators and even between the federal and state antitrust enforcement authorities. For firms with substantial market positions that are considering aggressive marketing or sales strategies, risk can be identified, evaluated and managed with prudent antitrust counseling.
Apart from the "naked" restraints on competition (such as the cartel conduct discussed above), antitrust law judges most other business conduct under the "rule of reason" -- that is, does the agreement r conduct have or threaten to have a substantial adverse effect on competition, e.g., by reducing output, raising prices or retarding innovation? In answering that question, the courts consider a number of factors, including the nature of the conduct involved, its purpose, possible legitimate business justifications and competitive conditions in the market.
While distressed conditions will not excuse cartel conduct, they may provide a justification for mergers, legitimate joint ventures and restructured distribution systems that would otherwise be absent.
There may well be business opportunities or strategies that, from an antitrust standpoint, are more defensible now than they would have been in the past. Thus, certain mergers or joint ventures that otherwise might have been problematic may, depending on the facts, now be more defensible from an antitrust standpoint if, in light of market conditions, the current market shares of one or both parties gives a misleading picture of their future competitive strength; or if one of the parties meets the "failing company" defense to a merger challenge; or if there are substantial, verifiable efficiencies from the transaction that counter any alleged anticompetitive effects.
WHAT SHOULD YOU DO?
1. Have an effective antitrust compliance program recalibrated to address risks posed by the challenging economic environment. This could include:
- Focused training sessions with those senior executives who are responsible for major strategic planning, as well as those officers or employees whose conduct potentially carries the most antitrust risk to the company from charges of price fixing, market allocation or bid-rigging.
- Steps company should take to diminish the likelihood of a government investigation or private challenge and those it might anticipate if the government initiates an investigation.
2. Companies with foreign operations need to understand the heightened international antitrust enforcement environment.
3. Mergers, joint ventures or other cooperative arrangements that are not per se illegal should be reviewed from an antitrust standpoint early in the planning stages, so that antitrust risks can be appropriately identified, and addressed or managed.