EMA is committed to the free enterprise system. The Federal and State antitrust laws are designed to preserve the free enterprise system, and it is EMA’s policy to assure full compliance with those laws.
EMA’s officers, directors, and members should be familiar with these antitrust compliance guidelines, and adhere to the spirit and letter of these guidelines. These guidelines are not a definitive statement of all applicable antitrust laws or their interpretation. Rather, they state absolute prohibitions and exceed the minimum requirements of the law, as a reflection of EMA’s policy.
Violation of this policy may adversely affect EMA, its members, and the individual violator. No such violation will be tolerated by EMA. In addition, individuals may be subject to criminal and civil penalties for their own acts. As will be apparent from the discussion that follows, each member must not only comply with the law, but should also conduct himself or herself in such a manner that it will not even appear that the law has been violated.
EMA will make every effort to keep all members informed as to their obligations and responsibilities for compliance with all antitrust laws and regulations at any EMA meetings which might involve discussions relating to competition issues. However, the primary responsibility for compliance rests with each individual member and each will be held strictly accountable for compliance.
Whenever a member feels or is in doubt about whether any action, question, or comment might create an antitrust problem, it is the member’s responsibility to seek guidance from the presiding member or legal counsel in order to obtain the necessary legal advice regarding it.
Executive personnel of EMA are expected to be able to recognize antitrust problem areas but should not undertake to resolve such matters without consultation with legal counsel. Legal counsel shall be responsible for the interpretation of this policy in consultation with EMA’s President and Chairman, and in appropriate circumstances shall investigate violations, monitor compliance, and answer inquiries as to compliance with the laws and regulations involved in this policy.
III. SUMMARY OF MOST IMPORTANT PROVISIONS
The primary antitrust provision with which EMA and its members must be concerned is Section 1 of the Sherman Act. Under Section 1 of the Sherman Act every contract, combination, or conspiracy (joint conduct by two or more), in unreasonable restraint of trade or commerce, is unlawful. Certain forms of joint conduct by competitors are presumed by the courts to be unreasonable, such as price-fixing agreements or the allocation of territories or customers. Other conduct is governed by the “rule of reason,” is not presumed to be unreasonable, and may be justified by legitimate economic efficiencies and business considerations. These guidelines are designed to make sure that members avoid circumstances of potential unlawful, joint conduct.
The Clayton Act supplements the Sherman Act and covers specific types of conduct. Thus, an unlawful “tying” agreement involves a seller conditioning the sale of a unique or desirable product (product A) on the customer buying the less desirable product (product B) where the seller has a dominant market position in the desirable product and competition in the less desirable product is foreclosed. Similarly, requirements and exclusive dealing contracts can also violate the Clayton Act in circumstances where competitors are foreclosed and there is the likelihood of a substantial lessening of competition. The Clayton Act prohibits certain mergers and acquisitions which may lessen competition.
The Robinson-Patman Act amendments to the Clayton Act prohibit a seller from discriminating in price and promotional allowances and services in the sale of products of like grade and quality to purchasers competing in the sale of those products.
Section 5 of the Federal Trade Commission Act supplements the Sherman Act by declaring unlawful unfair methods of competition in, or affecting, commerce. The Federal Trade Commission can define what constitutes an unfair method of competition and uses Section 5 to attack conduct which may not strictly come within the prohibitions of the antitrust laws, but which violates the spirit of those laws.
Many states have enacted antitrust and trade regulation laws similar to the federal laws, and which also may impact EMA’s activities.
IV. SPECIFIC AREAS OF ATTENTION
There are certain critical areas that deserve special attention:
A. Price Fixing
It is unlawful for competitors to reach any agreement or understanding about prices, whether it is to raise, lower, or stabilize prices, and any such discussions should be strictly avoided. The same restriction applies to discussions of certain other terms and conditions of sale, such as discounts, payment terms, credit, allowances and other terms which affect prices, profit margins, cost factors, discount or credit terms, or any member’s future intentions concerning any of those subjects. EMA’s members should not exchange with competitors price schedules or future notices of price or product promotions.
B. Allocation of Customers or Markets Among Competitors
Several other types of agreements or understandings are treated as harshly as price-fixing under the antitrust laws. Therefore, EMA members should not discuss or exchange information with each other about any of the following subjects:
(a) Any division or allocation of markets or territories;
(b) Any division or allocation of the customers to whom they sell; or
(c) Their merchandise volumes
or any restrictions on the volume of any member’s products available for sale
A boycott is an agreement by two or more parties, usually but not always at the same level of competition, to deny customers, supplies, or other competitive advantages to a third party.
Horizontal boycotts involve agreements by two or more competitors to coerce their customers or suppliers not to deal with a third party, to deny that third party access to crucial competitive resources, or to refuse to do business with a third party. Although this area is not treated quite as harshly as price fixing, EMA members should avoid any discussions which involve joint action in refusing to deal with suppliers or customers or obtaining agreement of a supplier or customer not to deal with a competitor of either.
The Antitrust Division of the Department of Justice and the Federal Trade Commission enforce the antitrust laws. In addition, state agencies may also enforce state and federal antitrust laws. Violators of the antitrust laws may face both civil and criminal penalties. The most serious penalties involve criminal violations and involve price fixing or bid rigging.
A. Criminal Penalties
Criminal violations of the Sherman Act carry up to three years in prison. For many years, few antitrust violators were actually sentenced to prison. In recent years, prison sentences have become more common, and it is the policy of the U.S. Department of Justice to seek prison sentences in all cases of individual criminal violations of the antitrust laws involving price-fixing.
Criminal violations also carry a fine of $350,000 for individuals, and $10,000,000 for corporations. The 1991 Sentencing Guidelines provide for enhancement by calculating the base fine on the volume of commerce affected or the pecuniary gain or loss caused by the defendant. A multiplier is then computed based on a number of factors by reference to a culpability score.
The culpability score can be reduced if the corporation had an effective antitrust compliance program. If a high-level employee is involved in the violation, the compliance program is presumed to be ineffective. However, if the defendant reported the violation or fully cooperated with the government investigation, the score may be reduced.
In addition, individuals convicted of a felony under state or federal criminal law may suffer other penalties, including loss of the right to vote, loss of the right to own a handgun, and loss of the right to travel freely outside the United States.
Those injured by violations of the federal antitrust laws may recover in civil actions three times the amount of actual damages they have sustained. Such litigation is very costly to defend and can lead not only to exposure for damages, but also to the opposing parties being awarded attorneys’ fees and costs. State laws also provide for recovery of damages by injured parties.
C. Injunctions or Consent Judgments
An injunction or consent judgment may be entered in a civil action. In many cases, companies are accused of only limited violations of the antitrust laws, but because the purpose of the antitrust laws is not only to punish past violations but to prevent future violations, injunctions, or consent judgments often contain sweeping prohibitions going beyond the scope of the violation originally involved in such cases. Such prohibitions can limit the future business freedom of EMA and its members. If the provisions of an injunction or consent judgment are violated, costly contempt penalties can be imposed by the court.
D. Government Imposed Compliance Programs
As part of a consent judgment or settlement, the government may require a company or trade association to submit to annual government audits. In addition, the government may impose a government-created antitrust compliance program upon the company, monitored by government attorneys.
VI. DOs & DON’TS - A CHECKLIST
A checklist of “dos and don’ts” provides a shorthand method that members can use to avoid antitrust exposure.
There should be no discussion or exchange of any information by or among competitors concerning:
1. Prices, price changes, price
quotations, pricing policies, discounts, payment terms, credit, allowances, or
terms or conditions of sale;
2. Profits, profit margins, or cost data;
3. Market shares, sales territories, or markets;
4. The allocation of customers or territories;
5. Selection, rejection, or termination of customers or suppliers;
6. Restricting the territory or markets in which a company may resell services or products;
7. Restricting the customers to whom a company may sell;
8. Unreasonable restrictions on the development or use of technologies;
9. Any matter which is
inconsistent with the proposition that each company must exercise its
business judgment in pricing its services or products, dealing with its customers and suppliers, and
choosing the markets in which it will compete.
Any member exposed to any discussions or activities which appear to violate this checklist should object immediately and: (1) disassociate itself from any such discussions; (2) if they continue, officially adjourn the meeting and leave immediately; and (3) report it to EMA’s President, who then should consult with counsel.