MODULE C - LEGAL

1. MODULE C - LEGAL SUBMODULES C1. Conflict Of Interest/Code Of Ethics C2. Antitrust C3. Torts C4. Intellectual Property C5. Speaking For The Society ASME C&S Training Module C2

2. REVISIONS DATE SLIDE CHANGE 7/21/05 Editorial revisions made throughout to reflect ASME organizational restructuring. ASME C&S Training Module C2

3. C2. Antitrust

4. OBJECTIVES This submodule will • Explain how antitrust laws affect ASME • Provide guidelines for avoiding antitrust violations in: • Codes and standards development • Conformity assessment ASME C&S Training Module C2

5. AGENDA • The Antitrust Laws • A Brief History of ASME and Antitrust Cases • Related Antitrust Cases • General Guidelines • Basic Do’s and Don’t’s ASME C&S Training Module C2

6. I. THE ANTITRUST LAWS ASME C&S Training Module C2

7. ANTITRUST LEGISLATION • The Sherman Act (1890) • Regulates certain business activities in interstate commerce • Forbids “every contract, combination or conspiracy in restraint of trade or commerce” • Prohibits monopolization • Basis of most antitrust laws of today ASME C&S Training Module C2

8. ANTITRUST LEGISLATION • Federal Trade Commission Act (1914) • Prohibits “unfair methods of competition” and “unfair or deceptive acts or practices” • The Clayton Act (1914) • Forbids specific kinds of business transactions, e.g. exclusive dealing and tying arrangements, and certain mergers, acquisitions, joint ventures ASME C&S Training Module C2

9. PENALTIES - Government Action • Sherman Act violations considered a felony • Justice Department criminal prosecution can result in • Corporations • Up to $1 million fine • Individuals • Up to $100,000 fine • Up to 3 years imprisonment ASME C&S Training Module C2

10. PENALTIES - Government Action • Justice Dept civil injunctive relief can result in • Sale of business or prohibition of conduct • For FTC Act violations • Administrative proceedings • Cease-and-desist order ASME C&S Training Module C2

11. PENALTIES - Damaged Parties • Private Right of Action • Lawsuit for damages or injunctive relief • Three times actual damages proved ASME C&S Training Module C2

12. THE COSTS OF ANTITRUST ACTIONS • Potential Costs • Conviction and/or damage award • Plaintiff’s attorneys’ fees and costs • Unavoidable Costs • Litigation expenses e.g. legal fees, expert witnesses • Lost productivity • Tarnished reputation ASME C&S Training Module C2

13. INTERPRETING THE SHERMAN ACT • Section 1 forbids all joint action that affects interstate or foreign commerce. • Interpretations by the courts: • Most joint actions found to be legitimate when • The motive deemed worthy • Trade not unreasonably restrained • Arrangements between competitors relating to prices, volumes of production and sales territories—clearly forbidden NOTE: Proof of formal agreement not required ASME C&S Training Module C2

14. INTERPRETING THE SHERMAN ACT • “Unreasonable” business activities • “Per se” violations are those that, if successful, seriously damage competition, for example: • Price-fixing between competitors • Agreements to divide sales territory, customers or products • Agreements to limit production • Acts that drive competitors out of market ASME C&S Training Module C2

15. INTERPRETING THE SHERMAN ACT • The “Rule of Reason” • Requires examination of all facts and circumstances to determine: • Intent to restrain competition • Public unreasonably deprived of access to competing goods or services • Makes compliance difficult to determine ASME C&S Training Module C2

16. INTERPRETING THE SHERMAN ACT • Section 2 • Forbids monopolization and any attempts to monopolize • Monopolization = deliberate acquisition or maintenance of power to control prices or foreclose access to a market ASME C&S Training Module C2

17. POP QUIZ #1 Which of the following would most likely be allowed under the Sherman Act? • A friendly agreement between all competitors to put no more than two competing stores in any area. • Any joint action that has a worthy motive. ASME C&S Training Module C2

18. ASME AND ANTITRUST • Scrutiny under the antitrust laws • Natural to societies and associations like ASME • ASME work less suspect than trade association efforts ASME C&S Training Module C2

19. ASME AND ANTITRUST • Vulnerable ASME activities include codes & standards development and conformity assessment. • Legal, recognized as beneficial, often required by regulation • BUT may affect competition by • Limiting competition to those products that meet the standards • Increasing the cost of producing a product • Have enormous economic importance ASME C&S Training Module C2

20. ASME AND ANTITRUST • The keys to avoiding antitrust problems are: • Ensuring a principled and controlled impact on competition • Reasonable, impartial, open programs that safeguard the rights of individual manufacturers and users • Commitment of volunteers and staff to participation consistent with antitrust laws ASME C&S Training Module C2

21. POP QUIZ #2 Why are ASME’s codes & standards and conformity assessment activities potentially vulnerable to antitrust suits? _____ ASME C&S Training Module C2

22. POP QUIZ #3(Extra Credit) • Name two ways in which C&S and conformity assessment activities can affect competition. • ____ • _____ ASME C&S Training Module C2

23. II. A BRIEF HISTORY OF ASME AND ANTITRUST CASES ASME C&S Training Module C2

24. U.S. v. ASME (1972) • Complaint • ASME accreditation available only to companies with plants in the U.S. and Canada • Foreign companies effectively prohibited from selling products in the U.S. and Canada • Outcome • ASME B&PV accreditation extended to manufacturers worldwide ASME C&S Training Module C2

25. ASME v. HYDROLEVEL • Complaint • Two Standards Committee members issued an interpretation on ASME letterhead that effectively barred a competitor from marketing his product. • Outcome • ASME found liable under the antitrust laws for consequences of actions taken by individual volunteers acting with “apparent authority” ASME C&S Training Module C2

26. ASME v. HYDROLEVEL • ASME’s response to the Supreme Court Decision • Enhanced due process and appeal rights • Interpretation committees • Publication and reconsideration of interpretations • “Agree to Adhere” form and Engineering Ethics material for new members • Leadership and training sessions for committee leaders and staff • “Conflict of Interest” policy ASME C&S Training Module C2

27. III. RELATED ANTITRUST CASES ASME C&S Training Module C2

28. INDIAN HEAD v. ALLIED TUBE & CONDUIT CORP • Complaint • Metal conduit manufacturers packed 1980 NFPA conference and voted down proposal to revise Fire Code to allow plastic conduit for building wiring • Proposal recommended by NFPA panel of experts ASME C&S Training Module C2

29. INDIAN HEAD v. ALLIED TUBE & CONDUIT CORP • Outcome—Findings were • No “balance” of interest groups was observed. • All members of the association were allowed to vote on a proposal. • The recommendation of an unbiased panel of experts was unjustifiably ignored. • A proposal was allowed to fail without valid and objective criteria. • A manufacturer was precluded from selling its product on the open market. ASME C&S Training Module C2

30. SESSIONS TANK LINERS v. JOOR MANUFACTURERS • Complaint • A manufacturer used his position as an NFPA Code Committee member to defeat a proposed revision allowing a competitor’s process. ASME C&S Training Module C2

31. SESSIONS TANK LINERS v. JOOR MANUFACTURERS • Outcome: Findings of a member’s misconduct • Misrepresented data • Sent anonymous letters opposing the revision • Questioned the safety of the competitor’s process • Warned of legal implications • Called for a vote after the competitor had left the meeting, even though vote not on agenda ASME C&S Training Module C2

32. IV. GENERAL GUIDELINES ASME C&S Training Module C2

33. CODES AND STANDARDS DEVELOPMENT • Things to keep in mind • Adoption or revision may: • Increase the cost of a product • Make nonconforming products unacceptable to buyers. • If the standard or revision is reasonable and objective, and does not discriminate unfairly between products, it should not be found to be unlawful. • Every volunteer is responsible for ensuring that all provisions of codes and standards can be justified. ASME C&S Training Module C2

34. (cont’d) CODES AND STANDARDS DEVELOPMENT • Ask yourself these questions: • Does the code or standard have a proper objective (e.g., safety or quality)? • Is the form the code takes suitable for the industry in question? • Is the code or standard based upon valid and objective criteria? • Is it the least restrictive standard possible? ASME C&S Training Module C2

35. CODES AND STANDARDS DEVELOPMENT • Ask yourself these questions (cont’d): • Is the Standards Committee broadly based? • Are any potential conflicts of interest in the group considered and publicized? • Have opposing views been considered? • Are the procedures followed in developing or referencing a code or standard fair? ASME C&S Training Module C2

36. FAIRNESS • Means the following: • Adequate public notice of the proposed adoption of a standard • An accurate record of the considerations available • A formal and publicized appeals process • Periodic review and revision of standards to reflect current technology • All industry members have an opportunity to conform to the standards ASME C&S Training Module C2

37. ISSUING INTERPRETATIONS • Special consideration • Interpretations do not revise standard’s requirements; limited involvement by general public • Guidelines • Interpretations should not appear to have an unreasonable effect on competition. • Objectivity and technical accuracy are essential. • They must be supported by specific wording in the code or standard. • Volunteer should avoid even the appearance of conflict of interest. • Report doubts to next highest level. ASME C&S Training Module C2

38. ACCREDITATION • Guidelines • Decision criteria must be objective, non-discriminatory and technically justifiable. • Safeguards against conflicts of interest are critical. NOTE: ASME procedures are in place for appeal upon denial of accreditation. ASME C&S Training Module C2

39. V. BASIC DO’S AND DON’T’S ASME C&S Training Module C2

40. BASIC DO’S AND DON’T’S Don'tattend any meetings under ASME auspices that do not a have a fixed agenda of matters to be covered. ASME C&S Training Module C2

41. BASIC DO’S AND DON’T’S Don't take part in any "rump" sessions at which matters before a committee or other body as a whole are to be discussed. ASME C&S Training Module C2

42. BASIC DO’S AND DON’T’S Don't discuss prices of competing or potentially competing products and don't disparage any particular product--whether or not it meets ASME standards. ASME C&S Training Module C2

43. BASIC DO’S AND DON’T’S Don't attempt to influence ASME standards activities and programs to benefit your own business activities or those of your employer in a manner not available to the public. ASME C&S Training Module C2

44. BASIC DO’S AND DON’T’S Don't discriminate against nonmembers of ASME or give preferential treatment to ASME Committee members. ASME C&S Training Module C2

45. BASIC DO’S AND DON’T’S Do make your company's interest in the subject clear to other members of your committee, when revising or interpreting a code or standard. ASME C&S Training Module C2

46. BASIC DO’S AND DON’T’S Do bring to the attention of ASME's officers or staff immediately any actual harm or potential harm related to a code, standard, revision, or interpretation. ASME C&S Training Module C2

47. IN CONCLUSION • Points to remember • The antitrust laws are complicated. Compliance is largely a matter of common sense and fairness. Ask: • Does any action taken by ASME or its volunteers lead to an unreasonable restraint of trade? • Is any particular business hurt by a code, standard, or interpretation, when it need not be to achieve a justifiable technical or public interest objective? ASME C&S Training Module C2

48. POP QUIZ #4 Which of the following could lead to antitrust problems? • An acquaintance mentions that a recent interpretation will have a devastating effect on a certain company. You say ho-hum and forget it. • A committee chairman uses his office to delay the approval of a revision to a standard • A committee member’s request for interpretation is moved up on the agenda, causing other items to be delayed due to lack of time. ASME C&S Training Module C2

49. POP QUIZ #5(Extra Credit) Which of the following could lead to antitrust problems? • You are having lunch with two other members of your committee and you get into a serious discussion regarding the accreditation of a company under consideration by the committee. • You are under pressure to get your committee together and decide to dispense with a formal agenda. “Everyone knows what we have to talk about, anyway,” you think to yourself. ASME C&S Training Module C2

50. SUMMARY • The Antitrust Laws • A Brief History of ASME and Antitrust Cases • Related Antitrust Cases • General Guidelines • Basic Do’s and Don’t’s ASME C&S Training Module C2