Avoiding the Big Cs in Meetings with Competitors: From Cartels to Comparisons

Transcription

1 Avoiding the Big Cs in Meetings with Competitors: From Cartels to Comparisons Chris Compton Registrar Summit June 5, 2008

2 Meetings of Competitors: Occasions of Sin The legal environment: cartel enforcement Job #1 at the DOJ and international antitrust agencies The risks in meetings: start or facilitation of a hard core cartel Mere collusion that lessens competition Exchanges of competitively sensitive information Mitigating the risks Some dos and don ts

3 The Legal Environment: Cartel Enforcement

4 Cartels are Crimes in the U.S. Sherman Act Section 1 is a criminal statute (DOJ) Max prison term 10 years; fine up to $ 1 million for individuals, $100 million for corporations (or twice the gain or loss caused by violation) Corporate Leniency Inspires Whistle Blowers Automatic amnesty for first to come forward Limits civil exposure to single, not treble, damages Damages limited to defendant; no joint & several Private class actions follow with a vengeance >90 suits since 2007 announcement of air cargo investigation.

5 Cartel Enforcement is Hyperactive The DRAM story ( ) Based primarily on price checking communications among middle managers (although directed at senior levels) All but Micron fined, jailed Since: Enforcement vs. Marine Hoses, Air Cargo carriers; investigations into SRAMS, LCD panels, graphics processors, et al. DOJ s highest priority Particular focus on international cartel activity >$4 billion in fines since 1997, dozens of jail terms Expect major criminal activity involving the DOJ and allegations of price-fixing in China ~65 cartel grand jury investigations underway end FY2007.

6 Cartel Enforcement, 2 Scary tools available Sarbanes-Oxley provides 20 years for obstructing DOJ investigation. Post-Enron whistle-blower hotlines 3/9/06 Patriot Act amendments permit bugging and wiretapping for criminal antitrust investigations. Extradition to and from U.S. now in play International Enforcement Also Increasing EU and dawn raids Korea, Japan, Ireland, et al. China coming online Aug. 1, 2008 Some not criminal (jail time), but adding huge fines Significant cooperation between US, foreign agencies

7 Mere Collusion Less serious agreements that lessen competition in some way. Still per se illegal, potential crimes Examples: Agreement to provide the same services and only compete on price Agreement to adopt closed standards that foreclose others Agreement to play in different vertical or geographic markets

8 Invitation to Collude in Quarterly Earnings Call Valassis (Mar. 2006) settled FTC charges that it used a quarterly conference call with securities analysts to attempt to collude with its only competitor Statements: Intended to maintain but not grow its market share; defend existing client base; submit bids on expiring competitor contracts at prices above current levels; honor prices quoted in existing bids for a limited time; and then to monitor its competitor s response to these initiatives. The first time that an invitation to collude case was brought solely on the basis of statements made in public and for that matter, statements that the defendant made during a taped quarterly conference call!

9 Sharing Information in Meetings

10 Examples of Imprudent Exchanges Casually, in social context The Popcorn Cartel walk in the fields. The golfing cart: We re killing each other for the same customers when there s plenty of opportunity for both of us.... Follow-up to the meeting Crandall, American Air to Braniff re the Dallas hub: Yes, I have a suggestion for you: Raise your G-D fares 20%. I ll raise mine the next morning. Invitation CEO When you re here, let s have lunch and discuss how we can stop these ruinous cycles of increasing production followed by price wars. Customers lose if we both go out of business.

11 Prudent Information Sharing: e.g., Best Practices & Benchmarking Theoretically OK, but must be done with care. Rule of reason applies: balance harm & benefits Compton s First Law: If it s not a business problem, it s probably not an antitrust problem. Does it really make sense to disclose this? Does it disclose information we really don t want competitors to have?

12 Information Exchange Guidelines Most sensitive: pricing, costs, marketing strategies, R&D or future plans, customer data Safer: aggregated or summarized data; historical data; third party data Limit access and use of information to those with need to know for the legitimate purpose of the meeting or exchange.

13 Do s & Don ts for the Conference Be friendly, but not a friend, with your competitor Especially during dinner, golf, other relaxed social settings Follow the agenda If in doubt, don t discuss it. Ask yourself if information has any competitive value Assume the room is being recorded by the FBI Leave if a discussion becomes inappropriate Take care with and notes

14 Q &A?

15 Charles T. (Chris) Compton Chris plays a leadership role in the firm s antitrust practice, focusing on merger regulatory and intellectual property issues. He has overseen the antitrust work in more than 900 mergers, acquisitions, and joint ventures many of which involved formal investigations by the FTC, DOJ, EC, and other international competition agencies. No transaction since 1980 has ever been blocked or abandoned due to an antitrust challenge by the DOJ or FTC. Named a Northern California Super Lawyer since 2004, Chris has also been cited in the editions of Chambers USA: America's Top Business Lawyers and in Best Lawyers in America, He also was listed as one of the Top- Ranking Competition Lawyers in Europe and Northern America (PLC, ). Chris has written extensively and teaches an antitrust/intellectual property course for the Santa Clara University School of Law LL.M. program. Chris can be reached by phone at , or by at ccompton@wsgr.com.