Antitrust Compliance Manual. VMware, Inc. Legal Department

Transcription

1 Antitrust Compliance Manual VMware, Inc. Legal Department Approved July 2, 2010

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3 Table of Contents Page A. Introduction and Statement of Corporate Policy... 1 B. Relations with Competitors Horizontal Price Fixing Market Allocation Agreements Boycotts Bid Rigging... 2 C. Relations with Channel Partners and Other Third-Party Resellers Acting as a Competitor Resale Prices: Vertical Price Fixing Price Discrimination: The Robinson Patman Act Note Regarding Exclusion of Distributors and Resellers... 8 D. Monopolization and Attempted Monopolization Tying and Bundling Arrangements Exclusive Dealing Agreements Predatory Pricing Refusals to Deal Vaporware E. Strategic Alliances and Joint Arrangements F. Intellectual Property G. VMware Antitrust Compliance System H. Language, and Document Creation/Retention I. Summary of the Antitrust Laws Federal Antitrust Laws State Antitrust Laws Foreign Antitrust Laws i-

4 VMware, Inc. ANTITRUST COMPLIANCE MANUAL A. Introduction and Statement of Corporate Policy This Antitrust Compliance Manual describes the antitrust laws of the United States and as well as general principles of antitrust law that apply in the European Union and internationally, in order to highlight the obligations of VMware employees and agents to comply with those laws. VMware s Board of Directors ( Directors ) and executive officers are committed to strict compliance with these laws. All VMware employees and agents are obligated to assist in this effort. Violations of the antitrust laws can result in severe penalties for VMware, including criminal fines, substantial monetary damages and a serious loss of reputation. In addition, violations can result in harsh penalties for individual employees and agents, including dismissal, monetary penalties and even imprisonment. The purpose of the antitrust laws is to promote vigorous competition. In order to provide American consumers with the best combination of price and quality and to promote efficiency, companies that do business in the United States or that engage in activities that have a significant effect on the U.S. market must comply with the antitrust laws. VMware must comply not only with U.S. antitrust laws, but also with the competition laws of foreign jurisdictions where VMware does business. VMware s Directors and executive officers expect and require strict compliance with these laws. If any employee or agent fails to comply with these laws or the standards and requirements set out in this compliance manual, he or she may be disciplined or dismissed and, in appropriate cases, referred to federal or state authorities for possible criminal prosecution. All of VMware s dealings should be carried out fairly, ethically and legally. Unfair or deceptive methods of competition, such as commercial bribery, coercion or scare tactics, false or deceptive statements about competitors or their products, or claims about VMware s products made without a reasonable basis, may violate applicable law and will not be tolerated. B. Relations with Competitors Among the most serious antitrust violations are certain relationships with competitors. Antitrust violations involving relations with competitors such as price-fixing and other forms of collusion are illegal and are subject to severe criminal penalties. Government prosecutions and private damage awards (which may be tripled), can yield corporate fines in excess of $100 million, depending on the volume of commerce involved, and individuals are routinely sentenced to prison for price fixing, bid rigging, and other collusion with competitors. In addition, government investigations or civil lawsuits can be enormously expensive for VMware and its employees even if VMware s conduct is later found not to violate the law. For purposes of these laws, the term agreement should be construed broadly. Beyond written agreements, the term also extends to all forms of verbal agreements, gentlemen s -1-

5 agreements, and even tacit understandings that are reached through a course of conduct or other form of communication. YOU MAY VIOLATE THE ANTITRUST LAWS BY AN INFORMAL VERBAL UNDERSTANDING. NO WRITTEN CONTRACT OR EXPRESS AGREEMENT IS REQUIRED. 1. Horizontal Price Fixing Horizontal price fixing occurs when two or more competitors agree on the prices that their customers will be charged. 2. Market Allocation Agreements Market allocation refers to agreements among competitors to divide markets among themselves in some way, e.g., by territory, product line, or customers. Market allocation is almost always a per se violation of the antitrust laws. 3. Boycotts A boycott occurs when two or more competitors agree to refuse to do business with a particular customer or supplier. 4. Bid Rigging Bid Rigging is an agreement among competing bidders to manipulate the bidding process in order to charge higher prices or offer worse terms to the buyer. Guidelines for Conduct NEVER participate in discussions and/or agree with competitors, directly or indirectly, on prices or other non-price terms for any customer. Likewise, never discuss and/or agree about the process or formulae for setting these prices, bids, or discounts. DO NOT exchange pricing information or other competitively sensitive information with competitors. It is AGAINST VMWARE POLICY to discuss or communicate with any representative of a competitor concerning past, present, or future prices, pricing policies, bids, discounts, promotions, terms or conditions of sale, royalties, territorial markets or production quotas. NEVER agree with a competitor about the territories, customers, or type of software that VMware will offer to particular customers. Never discuss these matters with competitors at all. Never identify VMware s current or prospective customers. NEVER agree with a competitor to refuse to deal with anyone, unless it is part of a legitimate joint venture and the VMware Legal Department has approved the standards of conduct regarding such a joint venture. -2-

6 NEVER try to obtain more favorable terms from a customer or supplier by agreeing with a competitor to refuse to deal with the customer or supplier unless more favorable terms are offered. YOU MAY consider competitors prices when determining VMware s prices and discounts; however, such information should be obtained ONLY from sources other than our competitors, such as published price lists, customers, and independent public resources. Make it your common practice to document the source of any business intelligence gathered, so as to demonstrate that the information did not derive directly from the competitor. YOU MAY NOT coerce or pressure a channel partner to follow certain prices. Every VMware channel partner has an absolute right to set its own pricing. When a competitor also is a customer or supplier of VMware, it is permissible to discuss or agree upon prices charged to or by VMware solely within the context of the particular buy-sell transaction at issue. VMware may send pricing information to a competitor in connection with (and within the scope of) a particular buy-sell transaction, provided the competitor is an actual or likely purchaser of the product in question. However, do not disclose any more information than is necessary to complete the transaction and DO NOT use the transaction as an opportunity to discuss or learn about the pricing of other competitors or products that are not part of the transaction. Special Note about Meetings and Communications with Competitors CONSULT THE LEGAL DEPARTMENT BEFORE ATTENDING TRADE ASSOCIATION MEETINGS WHERE THE PURPOSE OF THE MEETING OR AGENDA IS UNCLEAR AND/OR COMPETITORS WILL BE PRESENT. Some communications and collaborations among competitors are legitimate and work to the benefit of consumers. For example, educational or trade association meetings that involve social interaction and general discussions about industry developments, are lawful. However, communications among competitors about specific business conditions and activities risk being misinterpreted, and can result in an invitation to collude or the illegal exchange of competitively sensitive information. These are the standards that every VMware employee and agent MUST follow: Employees attending a trade association or industry meeting where competitors are present must pay close attention to the topics being discussed. If the discussion begins covering subjects that are in conflict with any portion of these guidelines (e.g., prices charged to customers), you MUST announce that you are leaving the meeting, ask that your departure be noted in the minutes, and report the occurrence to the Legal Department. You should exercise caution when discussing or sharing sensitive or proprietary company business information or documents with a Trade Association or any of its -3-

7 members. When in doubt, consult with the Legal Department on what information can and cannot be shared. NEVER make a statement that could be interpreted to invite or encourage competitors to take certain anti-competitive actions. For example, never say publicly or to any competitor that prices are too low, price wars need to stop, or make any statements not in conformance with this policy, which may be interpreted as an invitation to the competitor to respond in an anti-competitive manner. NEVER discuss with competitors: pricing, the terms upon which VMware is dealing with a particular customer, or plans to do so in the future. Likewise, never comply with a competitor s request to reveal non-public information such as: customer pipeline; marketing strategies for particular products or customers; or technologies under development, without the proper involvement of the Legal Department. NEVER attempt to discuss and/or agree with competitors regarding the timing of price or product launch announcements. C. Relations with Channel Partners and Other Third-Party Resellers Particular antitrust concerns may arise where VMware s products are sold through channel partners or other third party intermediaries, such as a reseller, third party lessor, OEM, or system integrator. This is because VMware may be wearing two hats when dealing with channel partners. VMware may be acting both as a seller and as a competitor. Such dual distribution by itself is not considered illegal but it has the potential to raise antitrust issues relating to discriminatory pricing and dealings with competitors. When VMware competes with a channel partner, it is important to treat the partner as a competitor and avoid discussing resale or end-user pricing or disclosing other competitively sensitive information (of course, you may discuss VMware s price to the channel partner). As a seller, VMware must avoid minimum resale pricing policies and price discrimination, both of which are explained below. 1. Acting as a Competitor Under some circumstances, VMware s own direct sales force or distributors may be directly competing with channel partners, targeting the same end-users. It is generally lawful for a manufacturer to choose to compete in some areas with its channel partners, as long as the guidelines for conduct listed below are followed. Generally, prices and other terms and conditions of VMware s sales directly to end-users should not be discussed with a competing channel partner. All of the same Guidelines for Conduct in the Relations with Competitors section, above, apply when dealing with customers who are also competitors. Guidelines for Conduct If you are bidding against a channel partner on a particular sale, do not discuss the price or other terms you intend to offer the end-user. -4-

8 If VMware and a channel partner both have a right to bid on a group of sales, do not allocate bidding opportunities between VMware and its partner. Avoid placing restrictions on a channel partner s right to resell VMware s products, or the manner in which a channel partner is permitted to resell VMware s products. Of course, normal licensing restrictions, such as those that may apply to bundled product SKUS, are completely acceptable. Please consult the VMware Legal Department whenever you have related questions on this matter. Do not discuss VMware s or channel partners profit margins or end-user pricing (current or historical) with other channel partners. If you need to discuss a particular channel partner s performance with another channel partner, focus on sales, promotion, and service performance and not pricing and related issues. Do not talk to one channel partner about the pricing or marketing practices of another channel partner. VMware may not coerce or pressure a channel partner to follow suggested prices. Every VMware channel partner has an absolute right to set its own pricing (see Vertical Price Fixing, below). You MAY obtain market and price information about competitors from customers, retailers, wholesalers and brokers, provided that they are not also VMware s competitors, and from independent public resources such as Gartner, Dataquest and IDC. Always try to document your source for competitive information. 2. Resale Prices: Vertical Price Fixing Vertical price fixing refers to the process of one company, e.g., a manufacturer, reaching an agreement with another company, e.g., a distributor, about the price at which a product will be resold. Employees MAY NOT reach an agreement or understanding whether formal or informal, express or implied concerning a distributor or reseller s resale price. Although VMware must regularly identify for its channel partners the prices at which VMware will sell to them, no resale price program which might influence or affect the channel partner s price to end-users should be instituted or maintained without the advice of the VMware Legal Department. Guidelines for Conduct Do not agree with a distributor or reseller on the resale prices the distributor or reseller will charge. As indicated below, providing non-competing channel partners with suggested retail pricing may be permissible, as long as the guidelines for conduct are followed. Do not coerce or pressure a channel partner regarding its pricing policies. Do not threaten termination or other reprisals for a channel partner s deviations from suggested prices, or take actions that might appear to be an effort to police resale prices. -5-

9 Do not require resellers to seek approval from VMware for deviations from suggested prices. Do not ask competing channel partners to report price deviations by other channel partners. Avoid placing restrictions on a channel partner s right to resell VMware s products, or the manner in which a channel partner is permitted to resell VMware s products. However, VMware may require channel partners to acquire a certain level of technical training before they are allowed to sell certain products. Do not provide price quotes to an end-user on behalf of a channel partner. If the channel partner has a right to sell to the end-user, the channel partner must independently price and quote the deal. If you provide non-competing channel partners with suggested retail prices, inform them that the prices are only suggestions and that they are free to set their own prices. Do not engage in activities that might appear to be an effort to control pricing in the resale marketplace. For example, do not solicit end-user pricing information from channel partners in an effort to control distributor or reseller pricing decisions. ALWAYS Consult with the VMware Legal Department before imposing any resale restrictions on a channel partner. If a reseller chooses to price below VMware s suggested minimum resale price, a VMware employee MUST NOT TERMINATE, THREATEN TO TERMINATE OR DOWNGRADE THE DISCOUNTING CHANNEL PARTNER TIER WITHOUT FIRST CONSULTING THE VMWARE LEGAL DEPARTMENT. 3. Price Discrimination: The Robinson Patman Act The Robinson-Patman Act prohibits a seller from discriminating in the price of goods between competing customers buying like products at the same time when the discrimination adversely affects competition. Equivalent prices, promotional allowances, and services generally should be extended to all similarly situated channel partners when they are purchasing products of a like grade and quality. Exceptions to the Rule against Discriminatory Pricing: Volume discounts may be offered to channel partners, provided that the same discount is practically available to all other competing, similarly situated channel partners buying the same product around the same time period. -6-

10 Different pricing can be justified if there are different costs involved in supplying the product to the two customers. For example, if the cost of supplying/servicing one customer is different than the cost to another customer, the price can be reduced to account for the savings. If the differential in price is based upon such differences in cost, the cost differentials must be well documented and based on sound accounting principles. Different pricing may be justified for reasons other than differences in cost if such justifications are explicitly discussed and pre-approved through the VMware Legal Department. It is permissible to charge a lower price to one customer or channel partner if the customer or channel partner performs certain functions or responsibilities that other customers or channel partners do not perform. For example, if one customer or channel partner provides value added services or marketing support that other customers or partners do not perform, the price can be lowered to account for these different functions. In such cases, employees responsible for setting prices should make a reasonable and good faith attempt to adjust prices to reflect the actual difference in cost or value attributable to these different functions. It is permissible to charge lower prices in the event that there are significant changes in market conditions, such as obsolescence or deterioration of products or the good faith discontinuation of a product line. A price discount can be extended to meet a lower offer by a VMware competitor. When a preferential price or allowance is being extended to meet a competitor s price, it is important to document the competitor s lower offer as communicated through the customer or channel partner. Guidelines for Conduct Do not, as a general rule, provide advertising, sales promotional allowances, materials, or other services to one channel partner unless you make equivalent sales assistance, services or materials available on a proportional basis to similarly situated channel partners. Any exceptions to the rule must be discussed with the VMware Legal Department. The antitrust laws typically do not forbid most-favored-customer contracts, which guarantee that no other customer will be treated more favorably than the contracting customer. On the other hand, there can be a problem if the contracting customer receives better treatment than anyone else. Do not agree to any clauses that guarantee a single customer better pricing/treatment than similarly situated customers (i.e., customers with similar purchase volume, and for which VMware incurs similar supply costs). Certain limited exceptions may apply when dealing directly or indirectly with governmental entities, but please be sure to discuss with the VMware Legal Department prior to acting. -7-

11 The Robinson-Patman Act also prohibits knowingly inducing or receiving a discriminatorily low price. Such a violation could occur if VMware pays a price to a supplier that a VMware employee or agent knows or should know is discriminatory within the meaning of the Act. Another possible way to violate this section is for an employee or agent knowingly to misrepresent to one supplier that another supplier is offering a lower price in order to induce the first supplier to lower its price. When purchasing a product, do not accept prices or terms where you suspect the supplier is not making the same prices or terms available to VMware s competitors purchasing under similar circumstances. Criteria used to determine the availability of all promotions, discounts and rebate programs, and advertising and marketing allowances should be applied consistently among all similarly situated channel partners. Similarly, the availability of product literature, training support, marketing brochures and samples shall be in conformance with the program benefits applicable to similarly situated channel partners. Participation in discount, rebate, and other promotions should be conditioned, if at all, on objective criteria. Imposing subjective requirements for participation in such promotions exposes VMware to potential legal liability under competition laws and a host of business issues (such as creating an adverse impact on partner relations). All similarly situated partners should be measured against a common set of objectively applied criteria. 4. Note Regarding Exclusion of Distributors and Resellers VMware operates a set of distributor and reseller programs that involve several tiers and related criteria for participation. Access to the program models and their respective tiers must be available to any business that meets the chosen criteria. Any alteration to the established criteria or any decision to exclude a distributor, reseller or prospective distributor or reseller from the network must be discussed with the VMware Legal Department. D. Monopolization and Attempted Monopolization Under the Sherman Act, it is unlawful to obtain or maintain market share using unfair means. It is lawful for a business to acquire market share by outperforming its competitors by winning customers through better products, services, and prices. A monopoly share (the share required to confer market power, the power to control prices or exclude competitors) can be far less than 100 percent of a market. A 67 percent market share is viewed as a monopoly share, and a monopoly share may be as low as 50 percent of a market, if sufficient to enable the company to control prices or foreclose the competition. In the European Union, even lower thresholds may apply (e.g., 30 percent). The Sherman Act also prohibits an attempt by a single firm to gain a monopoly share. VMware s position in our industry is attributable to the strength of our products and services and the conscientious efforts of our employees to anticipate and address the needs of our customers. -8-

12 This is entirely consistent with the antitrust laws. As mentioned, the antitrust laws DO NOT penalize a company merely because it is big or outperforming the competition. Rather, the antitrust laws seek to protect fair and open competition, by prohibiting, among other things, larger companies from improperly excluding rivals from accessing consumers or key resources and distribution channels. It is essential to avoid unfair, exclusionary or predatory practices in order to avoid potential violations. In general, such practices are those with no legitimate business purpose and which are implemented simply to harm a competitor. Bear in mind that some jurisdictions, such as the European Union, more closely regulate businesses that may have market power or a dominant position, especially with respect to the types and levels of discounts that can be offered. As such, discount programs and promotional offers should be reviewed carefully with the VMware Legal Department prior to rollout. 1. Tying and Bundling Arrangements Under certain circumstances, the antitrust laws prohibit tying the sale of one product in which the seller faces little competition to the sale of another in which the seller faces competition, that is, allowing a customer to purchase one product (the tying product ) only if the customer purchases a second product (the tied product ). The VMware Legal Department should be consulted before any effort to tie or bundle separate VMware products is undertaken. Note, however, that items which are economically impractical to sell separately or items normally sold in the same package or which are sold to be used together, are not subject to this prohibition. It is also permissible to offer promotions, in which a second product is offered at a discounted price in combination with another product, as long as VMware does not use the leverage of a substantial market share in one of the products to force the customer to purchase a second product. USE COMMON SENSE. If a practice has no business justification and harms a competitor by effectively foreclosing a competitor from the market, it may be viewed as a monopolizing practice. 2. Exclusive Dealing Agreements Exclusive dealing agreements are agreements that require a customer to purchase only VMware s products rather than those of competitors. These agreements are lawful so long as the practice benefits the customer in some way (i.e., it is not done solely for the purpose of raising prices or harming competition) and the sum total of all exclusive arrangements does not bind more than a third of the customers in the market to dealing with VMware. However, because of the complex antitrust issues raised by exclusive dealing agreements, which are often very fact specific, do not engage in exclusive dealing arrangements without the pre-approval of the VMware Legal Department. 3. Predatory Pricing Predatory pricing is loosely defined as pricing a product below cost in order to drive competitors out of business and recoup the losses through higher prices after those competitors have left the market. In the software industry, establishing the cost is difficult to assess given the large, -9-

13 up-front research costs and the relatively low or insignificant marginal cost to distribute the software. However, if you suspect that any proposed pricing plan could be characterized as predatory, you should consult the VMware Legal Department. Please be aware that certain customers could qualify for multiple discount or rebate programs and that the cumulative effect on prices of all applicable programs and rebates should be taken into account. Be particularly cautious in offering deep discounts in the EU where enforcement authorities have prosecuted discount programs offered by dominant firms including those which could be characterized as loyalty discounts. Please consult the VMware Legal Department prior to implementing new promotions, or discount or rebate programs. 4. Refusals to Deal Refusals to deal with competitors or customers (both end-users or channel partners) can raise antitrust concerns, particularly where the refusal is aimed at reducing competition and has no objective business justification, e.g., refusing to deal with channel partners that deal with competitors. While U.S. law generally permits businesses to refuse to deal with competitors, there is antitrust risk in refusing to deal with an existing customer or competitor with which VMware has previously done business. For these reasons, you should consult the VMware Legal Department before refusing to deal with any customers or competitors, particularly if you want to terminate an existing relationship. 5. Vaporware Do not pre-announce new products substantially before they become commercially available in an effort to scare competitors from developing competing products. Such tactics, sometimes referred to as vaporware, can subject VMware to suits by competitors or potential competitors and/or investigation by the Department of Justice or foreign jurisdictions. If you have any doubts about the timing of new product announcements, please consult the VMware Legal Department. E. Strategic Alliances and Joint Arrangements Strategic alliances can range in form from formal joint ventures (which may require the preapproval of the Government) to informal teaming arrangements. Alliances and strategic investments often produce pro-competitive benefits. However, antitrust concerns can arise when the collaboration is a pretext for conduct that is, or produces results that are, anti-competitive. In some cases, where the alliance is based on a formal joint venture or otherwise involves the acquisition of assets or voting securities from another entity, notice to the U.S. Federal Trade Commission is required before proceeding. Guidelines for Conduct -10-

14 You MUST consult with VMware s Legal Department about the structure and purpose of any proposed alliance or joint venture before proceeding with documenting the arrangement. VMware employees involved in standard-setting efforts must avoid any appearance that standard-setting is being used to shut out competitors or to keep suitable nonconforming products from the relevant market. Common recommendations regarding standard-setting organizations include the following: o Standards should be based on objective and fair criteria. o Standards should promote innovation, compatibility or interoperability, allowing new suppliers and new products to compete. o Standards should be applied fairly. o The standard setting organization s (SSO) activity should be narrow and focused. o Decision-making in the SSO should be independent. Control of the standardsetting process by VMware might raise antitrust concerns. o Collaborative activities should not replace VMware s own independent initiatives or activities. Remember: standard-setting alliances often involve meetings of competitors. As noted above, all the usual antitrust rules and cautions apply. Ensure that the alliance does not become a forum for price discussions or other prohibited activity. If you are organizing or participating in an alliance, always consult with VMware s Legal Department before proceeding. F. Intellectual Property Generally speaking, it is acceptable under the antitrust laws for a company to fully exploit a lawfully-acquired intellectual property right such as a patent, trademark, or copyright. A company may charge royalties for use of the intellectual property, refuse to license the intellectual property, or enforce its right to prohibit others from using the intellectual property. However, courts sometimes find that agreements involving intellectual property rights raise antitrust concerns. In particular, any condition or restriction contained in a license or agreement which may go beyond what is needed for protection of the intellectual property must be analyzed according to the general antitrust principles set out in these Guidelines. Guidelines for Conduct Licensing agreements with the following provisions raise antitrust concerns and should generally be avoided: o licenses that require the licensee to make royalty payments beyond the life of the intellectual property right involved -11-

15 o licenses restricting the licensee s ability to set its own prices for re-licensing o conditioning access to copyrighted software on the purchase of non-proprietary hardware or on the licensing of other unwanted technology o limiting the customers or territories where the Licensee s licensed products can be re-licensed Any proposed license of or agreement relating to VMware s intellectual property, particularly those with the above-listed provisions, MUST be reviewed and approved by the VMware Legal Department. G. VMware Antitrust Compliance System VMware has a three part antitrust compliance system. First, all employees whose activities could potentially raise antitrust concerns, or who supervise such employees, must read and acknowledge their understanding of this compliance manual. Second, any VMware employee who learns of conduct that raises antitrust concerns must report such conduct promptly, in any of the following ways: Contact the VMware Ethics Helpline at or visit Contact the VMware Legal Department by telephone ( ), by facsimile ( ) or by (GeneralCounsel@vmware.com) Any reported violation will be kept anonymous and confidential to the maximum extent possible. Although reports of violations or suspected violations under these guidelines may be made verbally, VMware people are encouraged to make any such reports in writing, which assists the investigation process. Failure to promptly report any violation or suspected violation of applicable laws or regulations, these guidelines, or any VMware policy is itself a violation of these guidelines and could subject you to disciplinary action, up to and including termination of employment. Employees in management positions are personally accountable not only for their own actions but also for the conduct of their subordinates. Examples of controls that may help reduce the risk of antitrust violations are listed in the Guidelines for Conduct sections throughout this document. Third, VMware will monitor its antitrust compliance policies and applicable laws on a periodic basis and members of the VMware Legal Department shall conduct routine reviews of proposed business programs, to ensure that employees and agents are acting appropriately and in compliance with this policy manual, and to identify ways to improve VMware s antitrust compliance policies. This manual contains a number of sections, which describe what employees and agents should and should not do to ensure compliance. Antitrust is a complex area, and these guidelines are general by their nature. No compliance manual, no matter how comprehensive, can answer every question. Therefore, always keep in mind that the antitrust laws are intended to promote -12-

16 competition; that is, the process of winning sales by offering a better product at a lower price. Vigorous competition is good for VMware and good for consumers. When in doubt about the requirements of this compliance manual or the antitrust laws generally, ASK FIRST before acting. Contact your supervisor or the VMware Legal Department. Your question will be welcomed. REMEMBER: IF YOU ARE UNCERTAIN, DON T ACT. ASK FIRST. REPORTING IS ENCOURAGED. NO ADVERSE ACTION WILL BE TAKEN AGAINST ANY PERSON WHO MAKES A REPORT IN GOOD FAITH, EVEN IF THE FACTS DO NOT ULTIMATELY CONFIRM A SUSPICION OF WRONGDOING. H. Language, and Document Creation/Retention VMware must not only comply with the antitrust laws, it must be seen to do so. Winning an antitrust lawsuit or fending off an extended government investigation may be of scant comfort if neither would have occurred but for inflammatory language or imprudent s, taken out of context. and PowerPoint presentations are a prime source of evidence. Even a routine merger investigation by the antitrust authorities, if competitors are involved, may include the review of digital and hard copy files going back three years or more. Remember that all of your written and recorded documents, including , voic , travel records and your personal diaries and files are all likely to be available to regulators and private litigants. Consequently, all VMware employees must be prudent in their written communications, no matter how informal especially those involving competitors. Avoid using exaggerated or macho language that can be misinterpreted, or inflame the authorities. Loose language about high market shares, barriers to entry, killing the competition, locking in customers, locking out competitors, dominating the market or stabilizing prices in the market can be extremely harmful when viewed later by the government or litigation adversaries. Do not use language that suggests that a customer or partner may be getting special treatment ( this is a special deal for you only ) or guilty behavior ( Please delete/destroy after reading ). Assume that all documents, including electronic databases, will be inspected by a regulatory authority who will issue the worst possible interpretation. Similarly, s with competitors, or about meetings with them, must be written with sensitivity to the understandable antitrust concerns that arise whenever competitors talk or meet together. IN SHORT, AS YOU WRITE AND SPEAK, ALWAYS ASSUME THAT YOUR WORDS COULD LATER BE USED AS EVIDENCE AGAINST YOU OR VMWARE. Don t make statements orally or in writing which exaggerate VMware s competitive power or which might suggest a predatory intent. Be careful of the exaggerated use of power words (e.g., This program will kill the competition. ) Do promote VMware as a vigorous and innovative competitor. Emphasize the competitive superiority of VMware s technology, employees, and products; and how they contribute to a profitable enterprise. -13-

17 Don t write reports that suggest VMware can make sales or profit projections without reference to marketplace competition. Don t write or say anything that might seem to express a predatory intent to monopolize, capture a dominant share of the market, or drive competitors out of business. Avoid use of guilt complex words (e.g., "Please destroy after reading.") Don t overstate VMware s market position. Don t claim credit for results not specifically attributable to VMware s efforts. Don t casually make reference to "market share" or identify "geographic markets" or "product markets" when talking or writing about VMware products. Defining the relevant "market," and a manufacturer s power and position in it, is at the very center of antitrust analysis. Business reports may mistakenly describe as a "market" only a segment of a relevant antitrust market, and such references can be difficult to explain later under close antitrust scrutiny. Don t express your sales objectives in negative terms. Avoid fighting, "locker-room" rhetoric. Don t suggest that VMware s size or scope enhances its ability to do things to competitors. Don t communicate with competitors on such subjects as bids, prices, costs, credit terms, marketing strategies, market shares, or sales policies. Do always remember that VMware has competitors, and that is as it should be. Do talk about VMware s desire to be a leader among competitors in meeting customer needs, in innovation, in providing effective products and services, and in vision for the future. Do emphasize VMware s successes and how they reflect customer satisfaction and customer choice. Do qualify any description of VMware s share of a market segment by emphasizing the competing products in the larger market, not just the market segment. Do identify VMware s objective as increasing VMware s sales rather than reducing the sales of someone else. Accurate factual comparisons with competitors are fine. Do truthfully promote how VMware s size and scope enhance its ability to do things for customers. Do clearly identify the source of any information you are communicating about a competitor s prices or other business information so that there will be no implication that the information was obtained from the competitor. DOCUMENT RETENTION: In the event that VMware is subject to litigation or a government investigation, the Company will put a hold on document retention policies. Do not destroy any documents that you are instructed to save (paper or electronic). Do not write on or change any document in any way, including handwritten notes. If you need to make changes to a document, make such changes on a copy of the original. Inappropriate destruction of documents can give rise to charges of obstruction of justice, punishable by 20 years in prison. I. Summary of the Antitrust Laws 1. Federal Antitrust Laws -14-

18 There are four major federal antitrust laws: The Sherman Act prohibits agreements that unreasonably restrain competition and further prohibits monopolizing, conspiring to monopolize, or attempting to monopolize a market through unfair means. The Clayton Act prohibits certain exclusive dealing arrangements, mergers that harm competition, and interlocking corporate directors i.e., where a director of one corporation sits on the board of a competitor. The Federal Trade Commission Act generally prohibits the same practices barred by the Sherman and Clayton Acts, but in a few cases extends beyond those laws to prohibit marketing or sales practices that are unfair and deceptive, such as false or misleading claims about a product. The Robinson-Patman Act prohibits price discrimination to competing buyers under certain circumstances, as well as discriminatory promotional allowances or payments. 2. State Antitrust Laws Every state of the United States, including California, has its own form of antitrust law. State laws are usually interpreted and applied quite similarly to the federal laws. In general, strict compliance with federal laws also will result in compliance with state laws. However, there are certain areas of the antitrust regulation, such as resale price maintenance and price discrimination, where the law of some states has yet to embrace relaxed standards that now govern at the federal level. 3. Foreign Antitrust Laws Although several sections of this document reference mainly US regulations, it is quite possible that practices of VMware in the United States could also violate foreign antitrust laws since many nations, including the European Union, have antitrust laws that are similar to those of the United States. For example, a price-fixing conspiracy within the United States, which fixed prices for products to be sold in Europe, could violate the antitrust laws of the EU or the national competition authorities. In addition, sales in foreign countries will also subject the seller to the competition laws of those jurisdictions. Since VMware operates its business globally, compliance of foreign antitrust laws are as crucial as compliance with US regulations. If you would like more detail on specific foreign antitrust laws, please contact the VMware Legal Department. -15-