Demonstration Of An Effective Antitrust Compliance Training Program Click to edit Master title style

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1 Demonstration Of An Effective Antitrust Compliance Training Program Click to edit Master title style Association of Corporate Counsel National Capital Region Program Presented by: Howard Feller McGuireWoods LLP 901 E. Cary Street, Richmond, VA May 18,

2 I. Fundamental Concepts A. Reasons for Compliance Program B. Consequence of Violations 1. Criminal Prosecutions a. Corporations greater of up to $100 million fine or 2 times the gain or loss b. Individuals up to 10 years in prison and $1 million fine McGuireWoods 2

3 2. Civil Lawsuits a. Treble damages b. Injunctions c. Plaintiffs attorneys fees d. Litigation expenses e. Management drain McGuireWoods 3

4 C. Joint vs. Unilateral Conduct D. Proof of Conspiracy McGuireWoods 4

5 II. Specific Prohibited Practices A. Price Fixing 1. Prices, Costs, Discounts 2. Price Signaling McGuireWoods 5

6 B. Dividing or Allocating Markets 1. Products, Territories or Customers C. Limitations on Quantity or Quality of Products D. Any Agreements to Reduce or Eliminate Competition among Competitors E. Bid Rigging McGuireWoods 6

7 F. Group Boycotts 1. Agreements with Competitors, Suppliers or Customers G. Resale Price Agreements H. Price Discrimination McGuireWoods 7

8 III. Industry Meetings, Customers Events and Trade Association Activities McGuireWoods 8

9 IV. Hypothetical Market Scenarios 1. Can you ask your customers to tell you what your competitors are charging so that you can set your prices? a. If you receive a copy of a competitor s price list or price offer from a customer, what should you do with it? McGuireWoods 9

10 2. If a customer asks you to meet a competitor s price in order to keep the business but refuses to give you a copy of the competitor s price offer, can you call the competitor to verify its price? a. Can you have an employee make a disguised undercover call to a competitor to verify its price? McGuireWoods 10

11 3. In setting your own prices, can you monitor your competitor s prices and charge similar or identical prices? a. If you change your prices based on your competitor s price changes, is it better not to document this or should you document the reasons? McGuireWoods 11

12 b. Can you have a general conversation with a competitor in which you talk about the challenges facing the business and the fact that prices have been too low for awhile, but neither of you says anything about what you intended to do regarding your prices? McGuireWoods 12

13 4. Your largest competitor announces a 5% price increase on July 1, effective September 1. You recently have experienced significant cost increases just like your competitor and see this as an opportunity to maintain your profit margin. Can you also announce an identical 5% price increase effective on the same day? McGuireWoods 13

14 a. Can you send out a press release or put a message on your webpage announcing your price increase? b. Should you include the amount of the price increase in your notification letter to customers? c. If you come in contact with an employee of a competitor, can you try to gather market intelligence by asking that person whether the competitor is planning to increase prices? McGuireWoods 14

15 5. You decide to increase your prices and have the new prices go into effect in 60 days. You normally send letters in advance to your customers announcing price increases. If one of your customers is also a competitor of yours for the sale of the same product, can you send the price increase letter to that customer? McGuireWoods 15

16 6. The President of one of your major competitors is the featured dinner speaker at the industry s trade association meeting. During that speech, the President talks about the challenges facing companies in the industry and the impact of recent developments. One of the developments he discusses is the fact that the costs of the company s primary raw materials have increased substantially. All of the other companies in the industry have experienced the same McGuireWoods 16

17 # 6 Continued: large cost increases. He then goes on to say that I don t care what anyone else is going to do, but we are going to raise our prices by 5% in the next 60 days because this cost increase is hurting our business. You are in the audience and hear this comment. What should you do? McGuireWoods 17

18 7. You are at a trade show and an employee of one of your competitors comes up to you and says We are going to raise our prices next week. Prices in this market are way too low. What are you going to do? Will you support us? What should you do in this situation? McGuireWoods 18

19 8. You are invited to go to a meeting with a major customer. The customer also invites your competitors because it wants to talk about some things that relate to all of its suppliers. At the meeting, the customer talks about problems it is having with deliveries from all of the suppliers. Can you and your competitors discuss these things jointly at the meeting with the customer? McGuireWoods 19

20 a. What if the customer says it wants each of you to reduce your price by 5% if it purchases above a certain volume. The discount will be based on each company s regular price. Can you discuss that jointly? McGuireWoods 20

21 9. You are a member of an industry trade association and it wants to conduct a survey regarding prices, costs, production and wages for certain common types of employees who are employed by members of the association. Can price, cost, production and salary information be shared legitimately with and published by the association? McGuireWoods 21

22 10. Can two local companies that sell very different products and are not competitors in the same industry exchange salary information about entry level IT employees and agree to offer the same starting salary for these employees? a. Can you and a competitor agree that you will not solicit or hire each other s employees in certain positions? McGuireWoods 22

23 11. Can competitors agree to set and adhere to specific safety or quality standards for their products? McGuireWoods 23

24 12. Can competitors work together to secure the passage of new legislation or regulations that favor those competitors, but may lead to a competitive disadvantage or harm to others? McGuireWoods 24

25 13. To try to keep your costs down, can you talk to competitors about the recent purchase price trends and agree on the amount that you will pay to suppliers for the raw materials or services you need? a. What if you set your own purchase price independently and all other competitors set their purchase prices separately and independently, can you agree with other competitors not to pay more than a certain maximum amount to suppliers for their raw materials or services? McGuireWoods 25

26 14. You are asked to participate with several of your competitors in a group purchasing organization which is designed to pool the purchasing power of the members and obtain lower costs for many commonly needed products and supplies. Can you participate in this group purchasing organization with your competitors? McGuireWoods 26

27 15. You and your 3 largest competitors participate in an industry trade association. Can a representative of the trade association negotiate with suppliers and enter into contracts with suppliers on behalf of the 4 largest members for a common purchase price? McGuireWoods 27

28 16. Can you talk to a competitor about the credit history or creditworthiness of a prospective customer? McGuireWoods 28

29 17. A competitor asks you if you would be willing to split the capital cost of building and operating a new facility that will provide a new service to customers. You would not build the facility by yourself because the cost is too high and it is risky. However, if you could split the cost with one or more competitors, you would probably make the smaller investment and take the chance. Can you joint venture with competitors in this situation? McGuireWoods 29

30 18. As long as you don t talk about prices, can you talk to other suppliers about whether they are going to bid for a particular contract? a. If you cannot supply or satisfy a contract that has been put out for bid by yourself, can you talk to another supplier about jointly bidding for the contract with you? McGuireWoods 30

31 19. A competing golf club supplier wants to buy some metal shafts from you because it cannot produce enough to meet its short term customer needs and you have some extra product that you want to sell. Both of you also sell golf balls. The other supplier says that in return for its purchase of metal shafts from you, it would like you to stay away from one of its golf ball customers. Can you do that? McGuireWoods 31

32 20. You go to lunch with one of your long-standing, good customers. The customer starts talking about which customers you should sell to in that market area and which customers you should not. Can you discuss that with your customer? McGuireWoods 32

33 21. Can you decide not to sell certain products or services to some customers, but sell them to others? McGuireWoods 33

34 22. You have been selling to a customer for many years. But the customer changed its marketing strategy and doesn t feature or promote your products. Can you terminate the customer? McGuireWoods 34

35 23. Can you agree to sell a particular product exclusively to one customer in a market area? a. What if a customer asks you to sell a product only to that customer and not to one of its specific competitors. Can you agree to do that? McGuireWoods 35

36 24. An appliance manufacturer, Salton, developed a hot new product, an indoor grill, which it called the George Foreman indoor grill. Salton invested heavily in a large advertising campaign. Other appliance manufacturers quickly developed their own indoor grill products to compete with the George Foreman grill, but the George Foreman grill clearly was the market leader. In fact, it was the No. 1 selling product in the small appliance category. Based on the popularity of this product, Salton told Wal-Mart that it could have the George Foreman grill only if Wal-Mart agreed to sell this indoor grill exclusively. Was this lawful? McGuireWoods 36

37 25. A supplier comes to you and says it has a hot new product. It believes that this product is really going to sell well and it wants the customers that it will select to sell the product to agree to sell the product exclusively. The supplier says that it has talked to two of your major competitors and they have said that they are willing to be exclusive if you are also going to be exclusive. Can you agree to be exclusive in this situation? McGuireWoods 37

38 26. Can you offer a lower price if a customer buys multiple product lines and a higher price if it only buys one product line? McGuireWoods 38

39 27. You send a minimum suggested retail price (MSRP) list to your customers but don t prevent them from selling below those suggested prices. One of your customers starts to sell your products at very low prices, substantially undercutting its competitors. The discounter s competitors complain about the customer s low prices and want you to do something about it. Can you terminate the low price customer because it is disrupting your customer network? McGuireWoods 39

40 28. Can you talk to a retailer about what the best resale price points would be for your products and ask the retailer to agree to resell the products at or above specific price points? a. Can you issue a minimum advertised price policy in which you provide co-op advertising money to retailers as long as they advertise your products at or above your Minimum Advertised Prices? McGuireWoods 40

41 b. Can you have the retailers sign your MAP policy indicating they will comply with it? McGuireWoods 41

42 29. Can you give a lower price to a customer that tells you that it received a lower price offer from one of your competitors? a. Should you document the information you received from the customer about the competitor s lower price offer? McGuireWoods 42

43 30. A&P sought to purchase private label dairy products and solicited bids from suppliers. Borden offered a $400,000 discount but A&P already had a $735,000 discount offer from Bowman Dairy. A&P then told Borden that its price was not even in the ballpark and that a $50,000 reduction would not be a drop in the bucket. Borden submitted a re-bid and offered an $820,000 discount. A&P didn t tell Borden that its second bid undercut Bowman and accepted the lower price. Was this illegal price discrimination by Borden? McGuireWoods 43

44 31. If you give a lower price to one customer because you are meeting a competitor s offer, do you have to lower your price to all of the customer s competitors? McGuireWoods 44

45 32. Can you develop promotional or advertising programs for specific customers in which you offer them special performance allowances? McGuireWoods 45

46 33. Shark and Target were competitors in the sale of various products and services. Shark signed an agreement to purchase all of the stock of Target and made a Hart-Scott-Rodino premerger filing. The DOJ investigated the transaction and allowed the transaction to close. The parties then actually closed the deal and merged their businesses. Because Shark was concerned about preserving the value of the deal, the Merger Agreement contained a number of provisions that governed Target s conduct before the McGuireWoods 46

47 # 33 Continued: closing. The Agreement prohibited Target in the preclosing period from offering customers discounts of over 20%, entering into service contracts of more than 30 days at a fixed price, or entering into any contract to provide certain services, without Shark s prior written approval. Target also was required to submit pre-approval forms to Shark which contained information about Target s customers and its McGuireWoods 47

48 # 33 Continued: prospective bids for new business. Shark had the right to approve or reject proposed customer contracts seeking discounts over 20%, or which fell in the other categories. Was there anything wrong with these coordination activities before the deal closed and the parties merged their businesses? McGuireWoods 48

49 34. If a prospective buyer needs information during the due diligence investigation about the competing seller s current contracts or bids in order to value the seller s business, can the buyer obtain that information? McGuireWoods 49

50 35. Once competitors agree to merge and obtain HSR approval, what activities can they begin to integrate before the closing so that they can hit the ground running when the deal closes? McGuireWoods 50

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