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Six Questions Every GC Should Ask to Assess the Risk of an FTC Antitrust Investigation

November 08, 2021 (5 min read)

By Timothy Haney

In the aftermath of the 2020 presidential election, corporate legal professionals engaged in months of speculation about how the Biden Administration might bring a different approach to antitrust enforcement than we saw in recent years. We now have sufficient evidence to confirm that at least one of the key federal antitrust regulators—the Federal Trade Commission (FTC)—intends to increase its focus on antitrust enforcement, making corporate antitrust compliance more important than ever.

Lina Khan was confirmed as the new chair of the FTC on June 16 and immediately got to work on setting a new tone at the agency. The Commission’s first meeting under Khan’s leadership “broke decades of precedent by taking place in public—something unheard of for the notably secretive antitrust and consumer protection agency,” reported Politico. Under her leadership, the FTC has subsequently taken some bold actions that send a clear signal of a more aggressive approach to antitrust enforcement.

In August, the FTC announced that it was reviewing its processes for merger reviews in response to a “tidal wave of merger filings that is straining the agency’s capacity to rigorously investigate” proposed deals. Using the novel approach, in deals the FTC could not fully review within the statutory timeline, it would issue a “Pre-Consummation Warning Letter,” which ominously advises both parties in a potential transaction that they are closing a deal at their own risk. The FTC letter cautions the companies that the agency maintains the right to take legal action at some point in the future if they believe it is in the public interest.

Then in September, the FTC voted to withdraw its approval of the Vertical Merger Guidelines—issued jointly with the Department of Justice (DOJ)—that were adopted in 2020 under the Trump Administration. The Commission described the former guidelines as including “unsound economic theories that are unsupported by the law or market realities” and laid out its intentions to develop new guidance that “expands” on the types of harms they may consider in reviewing proposed transactions.

The message is clear: the FTC is taking steps toward stricter enforcement of antitrust rules in the years ahead. In a Law360® article, Kathryn Mims and Ira Raphaelson of White & Case LLP argue that “we are witnessing a sea of change in U.S. antitrust policy that may well shift the focus from consumer benefit to a more aggressive and amorphous focus on alleged abuses of dominance.” And assuming Jonathan Kanter is confirmed to be the top antitrust official at the DOJ, then concrete steps will likely move toward stricter enforcement at the DOJ as well.

In-house counsel at companies of all sizes would be well-served to take notice of this change in tone at the federal level and take action now to review their company’s compliance with antitrust laws.

Here are six timely topics of antitrust questions that every GC should ask to help evaluate their company’s potential risk exposure to an antitrust investigation from the FTC or DOJ—or follow-on litigation from a private plaintiff. Most topics below are drawn from a practice note by Douglas Tween of Linklaters, a contributor to the Practical Guidance tool from LexisNexis®.

1. Price Fixing

Horizontal price fixing occurs between two or more competitors. Ask questions that solicit information about potential price fixing in different ways, depending on the job function of the employee you are interviewing. For instance, ask sales and marketing personnel how they set prices and whether they have ever agreed with anyone outside the company on the prices they charge. But remember that price fixing is not limited to sales activity; it could arise in the human resources context if competitors engage in fixing employees’ salaries.

2. Market Allocation

Illegal market allocation or division can happen in various ways. Ask questions and review documents with the goal of probing whether your company is agreeing with any third party (especially a competitor) to allocate or divide up customers, territories, products, suppliers, consultants, brokers, agents, wholesalers or retailers. It’s up to you to adapt the questions to the circumstances of the line of business involved.

3. Boycott Activity

A “horizontal” boycott involves an agreement between your company and a competitor to boycott a third party (e.g., vendor, customer, supplier, etc.). A “vertical” boycott is an agreement between your company and a party that is either upstream or downstream from you, such as a supplier or a customer. You should ask about possible boycott activity or agreements in a variety of ways to assess whether any illegal boycott agreements exist.

4. Tying

Illegal tying involves conditioning the sale of one product on the purchase of another product (i.e., tying the two together) where your company has market power. Develop a series of questions based on the various elements of the tying offense and adapt those questions to your unique business circumstance; then, review our helpful guidelines for evaluating tying agreements.

5. Resale Price Maintenance

Courts and scholars use the label “resale price maintenance” (RPM) to describe practices and agreements that manufacturers use to try to influence a reseller’s price (the actual selling price, not the advertised price). And while manufacturers and distributors have broad leeway under federal law to influence resellers’ prices, courts have the last say in deciding whether an RPM agreement imposes an unreasonable restraint on competition. Also, some state attorneys general continue to try to enforce state laws against RPM that allow less leeway. If you think RPM may be an area of concern, develop questions based on the law and assess the agreements you may have in place for possible exposures.

6. Information Sharing

It is a daily part of business operations to seek out market information about competitors in order to be more successful in the marketplace. The danger creeps in when competing companies seek to gain advantage by exchanging pricing or other commercially sensitive information. Ask direct questions to evaluate whether your company is exchanging information with others in the market in a manner that could facilitate collusion or otherwise reduce competition in violation of antitrust laws.

It’s important to explore these questions for situations in which your company may be either the perpetrator or the victim of illegal antitrust conduct. Mr. Tween notes that “lawyers often focus on the former, while ignoring the possibility that the company may be the victim of illegal antitrust conduct.”

LexisNexis has created a resource to assist your antitrust compliance review with one of the issues addressed in this article. Here’s a complimentary checklist to help you assess the antitrust risks associated with information sharing between your company and its competitors.