NAVIGATING THE ANTITRUST RULES: A MAP FOR THE CREDIT EXECUTIVE WITHIN AND WITHOUT THE INTERNET

1. NAVIGATING THE ANTITRUST RULES: A MAP FOR THE CREDIT EXECUTIVE WITHIN AND WITHOUT THE INTERNET Wanda Borges, Esq. Borges & Associates, LLC 575 Underhill Blvd. Syosset, NY 11791 516-677-8200 x 225 borgeslawfirm@aol.com TRMG ANTITRUST 2011

2. STATUTES THAT CONTROL ANTITRUST ACTIVITIES The Sherman Antitrust Act of 1890 Prohibits contracts, combinations and conspiracies in restraint of trade in interstate commerce or with foreign nations. Felony to conspire to restrain trade; or to monopolize (or attempt to monopolize). TRMG ANTITRUST 2011

3. STATUTES (cont.) The Clayton Act of 1914 Passed to “correct” defects in Sherman Act. Unlawful to enter into any of several specified types of prohibited transactions whose purpose or effect would be to restrain trade or injure a competitor. TRMG ANTITRUST 2011

4. STATUTES (cont.) The Robinson-Patman Act of 1936 Partially an amendment to The Clayton Act. Unlawful to “discriminate in price between different purchasers of commodities of like grade and quality”… …or knowingly to induce or receive a prohibited discrimination in price. Liability could be civil or criminal. TRMG ANTITRUST 2011

5. STATUTES (cont.) The Federal Trade Commission Act of 1914 Broadest of the antitrust statues; includes: mergers & acquisitions unfair trade practices unfair arrangements btw suppliers & dealers deceptive sales approaches discrimination in price, services or facilities false advertising, and any other practice to deceive the public. TRMG ANTITRUST 2011

6. STATUTES (cont.) ●The Antitrust Procedure & Penalties Act of 1976 ● Gives Fed, govt. new disclosure powers. ● Permits a State attorney general to sue for damages on behalf of a state’s citizens. ● Requires companies of a certain size to file pre-merger notices. TRMG ANTITRUST 2011

7. STATUTES (cont.) State Antitrust Statutes Almost every State has independent laws prohibiting monopolies, contracts, conspiracies and combinations in restraint of trade. TRMG ANTITRUST 2011

8. GOVERNANCE OVER ANTITRUST VIOLATIONS ● CIVIL ACTIONS ● punitive damages ● class action ● State AG - injunctions & damages ● Antitrust Division of US Dept. of Justice ● Federal Trade Commission (FTC) TRMG ANTITRUST 2011

9. GOVERNANCE (CONT’D) ● CRIMINAL ACTION ● Antitrust Div. of the US Dept. of Justice ● fines against businesses (<$100 million and individuals (<$1 million) ● jail terms for individuals (<10 years) ● Enforcement agencies: FCC for telecommunications entities. Federal Reserve Board for banks. FTC for all other matters. TRMG ANTITRUST 2011

10. DEPARTMENT OF JUSTICE ACTIVITY ● CRIMINAL ACTION ● Antitrust Div. of the US Dept. of Justice ● fines against businesses and individuals ● jail terms for individuals. ● Enforcement agencies: FCC for telecommunications entities. Federal Reserve Board for banks. FTC for all other matters. TRMG ANTITRUST 2011

11. DEPT. OF JUSTICE ACTIVITYTRANSPORTATION ● PRICE FIXING ● Air cargo carriers ● international freight forwarders ● water freight transportation TRMG ANTITRUST 2011

12. RESTRAINT OF TRADE(Unfair Competition, Price Fixing, Group Boycott) ● “Restraint of trade” = unreasonable per se unreasonable (did the incident occur?); or in violation of the “rule of reason” (judged by actual or potential effect on competitive marketplace). TRMG ANTITRUST 2011

13. RESTRAINT OF TRADE (CONT.) “Combination / Conspiracy”--4 elements: 1. Knowledge 2. Common purpose 3. Actual restraint, not merely facilitating 4. Intent to restrain trade “Conspiracy” = unity of purpose, common design, meeting of minds re: unlawful purpose TRMG ANTITRUST 2011

14. PRICE FIXING ISSUES FOR CREDIT GRANTORS ● Discussion beyond a “mere announcement” ● Agreement to maintain prices, with an enforcement mechanism (mfr./distrs.) ● Agreement to fix or set payment terms TRMG ANTITRUST 2011

15. CREDIT TERMS = PRICE ● Catalano Inc. v Target Sales (Supreme Court 1980 “Extending interest-free credit for a period of time is equivalent to giving a discount equal to the value of the use of the purchase price for that period of time. Thus, credit terms must be characterized as an inseparable part of the price” TRMG ANTITRUST 2011

16. BID RIGGING Bids manipulated so one competitor is given an unfair advantage over others. Caution: trading favors with a competitor in one area or deal, in exchange for reciprocal consideration in a later situation TRMG ANTITRUST 2011

17. GROUP BOYCOTTING Concept of sufficient market power Hallmarks of illegal group boycott: 1. Denial of access to a competitively useful commodity or service 2. Collective refusal to deal Group boycotting can exist even through action of only one party TRMG ANTITRUST 2011

18. INVOLUNTARY PETITION IN BANKRUPTCY CAN BE DEEMED A GROUP BOYCOTT MUST NOT BE DISCUSSED BEFOREHAND TRMG ANTITRUST 2011

19. INVOLUNTARY PETITION IN BANKRUPTCY – PROPER STEPS MAKE INDEPENDENT DECISION GET COMPANY AUTHORIZATION RETAIN ATTORNEY SEEK OTHER CREDITOR(S) TRMG ANTITRUST 2011

20. PRICE DISCRIMINATION A single party can violate. Robinson-Patman -- illegal to discriminate in prices between different purchasers of like goods, incl. credit and shipping terms C.O.D. vs. Open credit can be deemed discriminatory TRMG ANTITRUST 2011

21. PRICE DISCRIMINATION Different price to different purchasers of commodities Differences in terms and conditions of sale Preferential credit terms TRMG ANTITRUST 2011

22. PRICE DISCRIMINATION Only applicable to sale of tangible goods Not applicable to services or other intangible items NOT applicable to transportation since transportation is not a commodity TRMG ANTITRUST 2011

23. PREFERENTIAL CREDIT or CREDIT DENIAL PERMITTED in SPECIFIC INSTANCES Legitimate business reasons History of late payments Financial difficulty Superior credit records TRMG ANTITRUST 2011

24. MEETING COMPETITION Discriminatory price allowed when offered “in good faith” to meet an equally low price of a competitor Verify existence of competitor’s offer Do not exceed competitors in size, duration or scope Refuse to meet the competitor’s offer if illegal TRMG ANTITRUST 2011

25. GOOD FAITH STANDARD Reasonable belief the situation is of competitive necessity Belief that granting a lower price would meet the lower price of a competitor Substantial efforts must be made to verify actual price TRMG ANTITRUST 2011

26. DOCUMENTATION SUGGESTED Date of competitor’s offer Name of competitor making offer Name of customer Terms and conditions of offer Source of the Information & why you believe it TRMG ANTITRUST 2011

27. LEGITIMATE BUSINESS REASON Cost Justification Market Conditions Superior Credit History or Records TRMG ANTITRUST 2011

28. PROMOTIONAL ALLOWANCES Proportionally equal terms Dollar volume or quantity purchased during specific period of time Equal rate per unit or amount purchased Specified part or percentage of local advertising TRMG ANTITRUST 2011

29. GUIDELINES FOR TRADE ASSOCIATION MEETINGS Antitrust Compliance Statement. Members should be reminded that the account discussions about to take place will be conducted in accordance with Federal Antitrust guidelines. Therefore, there can be no discussions of any prices, terms, company policies or credit lines. Remarks must be confined to present and completed transactions only, with no mention of any future plans of action. All of the information obtained from the Group is strictly confidential and may not be disclosed to anyone other than the members' own credit department. TRMG ANTITRUST 2011

30. TRADE ASSOCIATION MEETINGS (CONT’D) Independent representative present Written agenda followed Minutes of all meetings maintained No discussions outside the meeting TRMG ANTITRUST 2011

31. NON-PERMISSIBLE DISCUSSIONS Credit terms. Production limits Distribution and boycott Involuntary Petition in Bankruptcy Refusal to do business with certain customers Price fixing (key phrases could be misconstrued). TRMG ANTITRUST 2011

32. NON-PERMISSIBLE DISCUSSIONS Allocation of customers Dividing Territories Bids Geographic areas Types of business TRMG ANTITRUST 2011

33. PERMISSIBLE DISCUSSIONS Delinquent account reports –NO discussion of future (i.e., intent). Exchange of factual credit information TRMG ANTITRUST 2011

34. PERMISSIBLE ACTIVITIES[when you get back to the office] Credit Term Changes Credit Record Review of customer’s financial information Your company’s position in the market TRMG ANTITRUST 2011

35. PERMISSIBLE ACTIVITIES – cont’d[when you get back to the office] Refusal to deal with particular customer Must be unilateral Must be independent decision TRMG ANTITRUST 2011

36. ELECTRONIC CREDIT EXCHANGE Antitrust Rules still apply Request for references Giving references Electronic data lasts forever TRMG ANTITRUST 2011

37. ELECTRONIC CREDIT EXCHANGE RECOMMENDED LANGUAGE ON ELECTRONIC TRANSMISSIONS This Credit Reference is provided at the request of and is based upon information maintained in my filed as a result of my company’s experience with ______. No judgment or recommendation concerning credit decisions is given or implied by this information. The recipient must determine its own credit decision. The data contained in this report is for information purposes only. TRMG ANTITRUST 2011

38. ELECTRONIC CREDIT EXCHANGE REQUIRE AFFIRMATION IN ADVANCE The credit information you are about to view electronically is accurate information contained in my records and you are requesting same in order to determine the creditworthiness of ____________. You may make one printed copy of this Electronic Information for your own use. You may not distribute, transmit or otherwise circulate the Electronic Information to anyone else. TRMG ANTITRUST 2011

39. ELECTRONIC CREDIT EXCHANGE CREATE MANDATORY CONSENT I have read and understand this Use Agreement and Agreement to be bound by its terms Lock mechanism to disable anyone from proceeding without accepting restriction TRMG ANTITRUST 2011

40. RECORD KEEPING Records justifying cancellation of non-performing agents Credit reports on which decision was based TRMG ANTITRUST 2011