Antitrust and Trade Associations

1. Antitrust and Trade Associations Introduction and Background Anthony W. Swisher Akin Gump Strauss Hauer & Feld LLP May 19, 2009

2. “People of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Adam Smith, An Inquiry Into the Nature and Causes of The Wealth of Nations 128, Edward Cannan ed., Random House, Inc. (1937)

3. The Relevant Antitrust Statutes • Section 1 of the Sherman Act prohibits “every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade . . . .” • Section 2 of the Sherman Act prohibits monopolization and attempts to monopolize • Section 5 of the Federal Trade Commission Act prohibits “unfair methods of competition”

4. Trade Associations Have Provided Fertile Ground for Antitrust Enforcement • Courts have recognized that trade associations, by their mere existence, do not violate the antitrust laws • However, by their nature, trade associations bring together competitors to address topics of common interest, potentially raising antitrust issues • Common trade association activities, such as membership decisions, information sharing, standard setting, lobbying and issue advocacy, all potentially raise antitrust issues

5. Trade Associations are Subject to the Antitrust Laws • California Dental Association v. FTC, 526 U.S. 756 (1999) • “Nonprofit entities organized on behalf of for-profit members have the same capacity and derivatively, at least, the same incentives as for-profit organizations to engage in unfair methods of competition or unfair and deceptive acts.” Id. at 768.

6. Antitrust Liability Can Be Imposed on a Trade Association Member . . . • Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988) • Imposed antitrust liability on a member of a trade association (the National Fire Protection Association) for improperly influencing the association’s standard-setting activities to exclude a competitor • “Typically, private standard-setting associations, like the Association in this case, include members having horizontal and vertical business relations. There is no doubt that the members of such associations often have economic incentives to restrain competition and that the product standards set by such associations have a serious potential for anticompetitive harm.” Id. at 500 (citations omitted).

7. . . . Or on the Trade Association Itself • American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556 (1982) • “When ASME’s agents act in its name, they are able to affect the lives of large numbers of people and the competitive fortunes of businesses throughout the country. By holding ASME liable under the antitrust laws for the antitrust violations of its agents committed with apparent authority, we recognize the important role of ASME and its agents in the economy, and we help to ensure that standard-setting organizations will act with care then they permit their agents to speak for them.” Id. at 557-58.

8. Backdrop: The New Enforcement Environment • Under the Obama Administration, the two principal federal antitrust enforcement agencies, the Federal Trade Commission and the Antitrust Division of the Department of Justice, promise to be more aggressive enforcers than under the prior administration

9. Backdrop: The New Enforcement Environment (continued) • Christine Varney, the new Assistant Attorney General in charge of the Antitrust Division, has already begun to repudiate the more “laissez faire” approach of her predecessor, and promised more aggressive enforcement of Section 1 and Section 2 of the Sherman Act • See, e.g., Vigorous Antitrust Enforcement in this Challenging Era, remarks of Christine A. Varney, Assistant Attorney General, Antitrust Division, U.S. Department of Justice, before the Center for American Progress, May 11, 2009

10. Backdrop: The New Enforcement Environment (continued) • Jon Leibowitz, Chairman of the Federal Trade Commission, has identified reinvigorating enforcement of Section 5 as one of his top priorities • See, e.g., “Tales from the Crypt,” Episodes ’08 and ’09: The Return of Section 5 (“Unfair Methods of Competition in Commerce are Hereby Declared Unlawful”), remarks by Jon Leibowitz, Commissioner (now Chairman), Federal Trade Commission, before FTC Section 5 Workshop, October 17, 2008

11. Backdrop: The New Enforcement Environment (continued) • Bottom line: Vigorous antitrust enforcement will be the norm

12. Antitrust and Trade Associations Introduction and Background Anthony W. Swisher Akin Gump Strauss Hauer & Feld LLP May 19, 2009

13. FTC ANTITRUST ENFORCEMENT AND TRADE ASSOCIATIONS May 19, 2009 Geoffrey M. Green Deputy Assistant Director Anticompetitive Practices Division

14. RECENT FTC CASES* • Connecticut Chiropractic Association, C-4127(April 14, 2008) • antitrust risk when a trade association operates as a labor union (collective bargaining and strikes) • National Association of Music Merchants, Inc., C-4255 (April 8, 2009) • antitrust risk when trade association meetings become a forum for the exchange of competitively sensitive information • American Petroleum Company, Inc. C-4198 (Aug. 21, 2007) • antitrust risk when a lobbying campaign veers from persuasion to coercion (collective restriction on output) * The views expressed are not necessarily those of the Federal Trade Commission or of any individual Commissioner.

15. Connecticut Chiropractic Ass’n • Respondents: Two trade associations with combined membership of 525 licensed chiropractors, and association counsel. • Target: ASH – an organization that offers to payors (e.g., health insurance companies) a network of chiropractors, and administers chiropractic benefits. • ASH attempted to enlist chiropractors to participate in its Connecticut network.

16. Connecticut Chiropractic Ass’n • Challenged Conduct: Respondents organized a boycott of the ASH network, preventing ASH from providing its benefits program to payors: • At monthly meetings, members discussed dissatisfaction with ASH’s price and other terms; • Associations exhorted collective refusal to participate (“We must band together.”); • Distributed a model opt-out letter to members; • Attorney collected and distributed information on progress of opt-out campaign (“We need 50 more to destroy the panel.”).

17. National Ass’n of Music Merchants • Respondent: Trade association consisting of most U.S. dealers, distributors & manufacturers of musical instruments (MI) (more than 9000 members). • NAMM promotes consumer demand for musical instruments; lobbying function; offers seminars. • Organizes and sponsors annual trade shows.

18. National Ass’n of Music Merchants • Challenged Conduct: During 2005 – 2007, NAMM organized meetings and programs where competing MI retailers were permitted and encouraged to discuss: • the restriction of retail price competition; • strategies for the adoption, implementation, and enforcement of minimum advertised price polices; • appropriate and optimal retail prices and margins. • NAMM representatives set the agenda and determined the scope of discussions. • No legitimate business purpose. • Conduct had the purpose and capacity to facilitate collusion.

19. National Ass’n of Music Merchants • Consent decree requires NAMM to cease and desist from advocating, coordinating, or participating in: • Information exchanges relating to the retail price of musical instruments or other terms of dealing (profits, margins, pricing policies including MAP or RPM); • Agreements on retail prices, terms of dealing, or refusing to deal. • NAMM required to institute an antitrust compliance program. Elements of the program are specified in the FTC Order.

20. American Petroleum Co. • Respondent: American Petroleum imports and sells lubricants in Puerto Rico. • Legislature passed law requiring payment of an environmental deposit of fifty cents for each quart of lubricants purchased. • American Petroleum joined with competitors in a campaign seeking repeal of the law.

21. American Petroleum Co. • Challenged conduct: • American Petroleum and several competing importers and sellers of lubricants agreed to cease importing lubricants as of the day that the law was scheduled to take effect, and continuing for so long as the law remained in effect (per se unlawful restriction on output). • Conspirators issued a public warning that, as a result of this joint action, there would be shortages of lubricants throughout the island.

22. Criminal Antitrust Enforcement and Trade Associations How to Meet With Your Competitors Without Landing In Prison J. Brady Dugan Akin Gump Strauss Hauer & Feld LLP May 19, 2009

23. Sherman Act § 1 Basics • Sherman Act § 1 prohibits “contracts, combinations and conspiracies” that unreasonably restrain trade • Agreement is the key • Need not be in writing: may be inferred from circumstantial evidence • Agreements include – gentlemen’s agreement; handshake; or even a “knowing wink”

24. Sherman Act § 1 Basics • Circumstantial Evidence of Agreement: • e.g., two competitors meet; the next day they simultaneously increase prices by the same amount - conspiracy may be inferred • e.g., two competitors exchange information on bidding plans; their next bids are very similar - conspiracy may be inferred • Telephone calls • E-mails • Other contact

25. Criminal Enforcement – U.S. Department of Justice

26. Criminal Enforcement – Conduct Prosecuted • DOJ Prosecutes “Hard Core” Cartel Offenses • Agreements Among Horizontal Competitors to: • Fix Prices • Rig Bids • Allocate Markets (Customers/Territories) • Allocate Sales Volumes/Restrict Output

27. Criminal Enforcement – Conduct Prosecuted • The Antitrust Division will prosecute any crime that involves a corruption of the competitive process • Bribery • Kickbacks • Embezzlement • Mail & Wire Fraud • Foreign Corrupt Practices Act

28. Criminal Enforcement – Penalties for a Sherman Act Violation • Individuals • up to 10 Years in Jail & $1,000,000 Fine • Corporations • up to $100 million Fine • Alternative Fine (18 USC § 3571 (d)) • Twice the Gain or Twice the Loss

29. Criminal Enforcement – How DOJ Finds Cases • Leniency Applications • Lead From Ongoing Investigation • Contacts With Federal Investigators • Outreach to Government Agencies and Private Firms • Complaints From Victims (Government or Private)

30. Criminal Enforcement – How DOJ Finds Cases • Market Conditions Conducive to Collusion: • Limited number of producers • Homogeneous (commodity) products • High entry costs • Cost of input small relative to value of end product • Input product needed by large buyers

31. Criminal Enforcement – Trade Associations • Often viewed with some suspicion by enforcers • Meeting of competitors • Can be used as a cover for cartel meetings • Industry characteristics relevant – is it susceptible to collusion • Variety of settings to discuss sensitive topics • Formal meetings • Informal: at dinners, social events, the hotel bar • Danger of Trade Association Meeting: Multiple opportunities to reach agreements

32. Criminal Enforcement – Trade Associations Check list of topics to avoid at trade association meetings • Prices or other terms or conditions of sale, including: • Pricing methods • Timing of price changes • Discounts • Price advertising • Profit margins • Competitors, including: • Whether to do business with a certain competitor • Complaints about the business practices of a competitor

33. Criminal Enforcement – Trade Associations Check list of topics to avoid at trade association meetings • Customers, including: • Whether to sell to a certain customer • Geographic areas where your customers are located • The share of the customer base held by each firm • Suppliers, including: • Whether to do business with a supplier; • Terms charged by a supplier; • Patents, including: • The validity of a patent; • Terms of a patent license

34. Lysine Cartel - Introduction

35. Lysine Cartel –Trade Association As Cartel Cover

36. Lysine Cartel –Trade Association Used as Cover

37. Marine Hose Cartel –Trade Show Used for Cartel Meeting Marine Hose: Application for Arrest Warrants,United States v. Whittle, April 24, 2007 • 26. The United States is seeking warrants [to execute ] . . . during the defendants' anticipated upcoming stay in Houston, Texas, for the Offshore Technology Conference ("OTC"). The OTC is an annual worldwide conference of engineers, scientists and managers associated with the ocean resources industry. . . . I have reviewed emails between WHITTLE and other cartel members in which WHITTLE has tried to organize in-person meetings during or immediately after the OTC to discuss the marine hose conspiracy . . . . • 27. DCIS has learned . . . [a] private meeting . . . is planned during the OTC. Documents I have reviewed show that WHITTLE intends to discuss future understandings about the marine hose conspiracy during this meeting.

38. Criminal Enforcement – Trade Associations • Play it safe! • No discussions of formal or informal arrangements re: market • No exchange of sensitive information unless approved by counsel • Create a record of what will happen at the meeting • Create a record of what happened at the meeting • Consider whether it makes sense to have counsel attend

39. Trade Association Antitrust Issues Michael Spector Senior Associate Counsel America’s Health Insurance Plans

40. Antitrust Laws: Range of Trade Association Issues 1. Training/Compliance 2. Advocacy/Noerr-Pennington 3. Meetings 4. Surveys and Reports 5. Membership 6. Standard Setting and Related Activities 7. Industry-Wide Initiatives 39

41. Training/Compliance Want prevention (compliance) not cure (liability) Training Antitrust compliance statement Active involvement of legal department 40

42. Advocacy/Noerr-Pennington Noerr-Pennington: Advocacy activities protected under antitrust laws Advocacy: Range of actions intended to influence legislative, executive, or judicial branch Limitations: Abuse of the system Joint action in the market Anti-competitive discussions 41

43. Meetings Antitrust Concern: By their nature many trade association activities, including meetings, involve horizontal competitors Meetings can cover a wide range of legitimate topics, but associations need to prevent anti-competitive discussions from occurring Key Concepts: Use agendas and stick to them Use antitrust counsel Concerns apply to informal and formal settings 42

44. Surveys and Reports Antitrust Concern: Surveys and reports could violate the antitrust laws or lead to violations Key Concepts: (1) initial legal department review (2) minimize competitively-sensitive data (3) utilize safeguards (e.g., aggregation, third party) (4) preserve confidentiality (5) make clear to be used only for appropriate purposes 43

45. Membership Antitrust Concern: Harm from competitors being denied access to membership Key Concepts: Membership rules reasonably related to the mission and goals of the organization Membership decisions reasonable, objective, and applied uniformly 44

46. Standard Setting and Related Activities Antitrust Concern: Standard setting and related activities can facilitate illegal agreements Key Concepts: No agreement that won’t deal with non-compliant companies No punishment of members that opt not to use 45

47. Industry-Wide Initiatives Antitrust Concern: Industry-wide initiatives done through the auspices of a trade association can reflect agreements in violation of the antitrust laws Key Concept: Even the most worthy goals do not excuse an antitrust violation 46