Alert March 01, 2016

U.S. Antitrust Agencies Continue Enforcement Push Targeting Invitations to Collude

Summary

Recent federal antitrust enforcement activity demonstrates that companies that invite or merely suggest collusive agreements to competitors can be found liable. As the federal antitrust authorities continue their path to vigorous enforcement, it is crucial for companies to appreciate how even an unaccepted invitation to collude could still potentially run afoul of the antitrust laws. Companies must be cognizant that all discussions or communications with their competitors on topics relating to competition or pricing could lead to potential exposure.

A well-understood tenet of antitrust law is that companies cannot agree to collude or otherwise form anticompetitive agreements with their competitors. Recent federal antitrust enforcement activity demonstrates, however, that companies that invite or merely suggest such collusive agreements to competitors can also be found liable. As the federal antitrust authorities continue their path to vigorous enforcement, it is crucial for companies to appreciate how even an unaccepted invitation could still potentially run afoul of the antitrust laws. 

A recent enforcement action at the Federal Trade Commission (FTC) is illustrative. In the Matter of Drug Testing Compliance (“DTC”) Group, LLC,[1] the FTC alleged that DTC, a provider of value-added compliance services to commercial drivers, contacted a rival supplier to complain that the competitor had induced a DTC customer to switch service providers away from DTC. The president of DTC requested a meeting with the competitor to discuss the matter and, at that meeting, allegedly proposed that the two firms agree not to solicit or compete for one another’s existing customers. DTC’s president explained that such an agreement could be beneficial to each company as it could sell its services to customers without fearing that its rival would later undercut it with a lower price offer. According to the FTC, DTC’s offer was never accepted. 

The FTC is mum on the way in which it learned of the invitation to collude but one can guess. Following an investigation, the FTC found that DTC’s invitation to collude with a competitor violated Section 5 of the FTC Act on its face and required no showing of market power, market concentration, adverse competitive effect, or proof that the competitor actually accepted the invitation. DTC was hit with a 20-year consent order enjoining it from engaging in such anticompetitive behavior in the future as well as imposing burdensome ongoing reporting and compliance requirements. Specifically, the order provides that:

  • DTC is enjoined from communicating with its competitors about customers, rates or prices (although there is an exception for dissemination of information to the public through websites or public advertising);
  • DTC is enjoined from entering into, participating in, maintaining, organizing, implementing, enforcing, inviting, encouraging, offering, or soliciting an agreement with any competitor to divide markets, to allocate customers, or to fix prices or other terms and conditions; and
  • DTC is prohibited from urging any competitor to raise, fix, or maintain its price or rate levels, divide markets, allocate customers, or to limit or reduce service terms or levels.

This isn’t the first time that the FTC has targeted this type of conduct.  In a 2014 case, In the Matter of Nationwide Barcode,[2] two Internet resellers of UPC barcodes used by retailers for price scanning and inventory purposes settled FTC charges that they violated the FTC Act by inviting competitors to join in a collusive scheme to raise the prices charged for barcodes sold online. Even though the invitations to collude did not result in an agreement on price or other terms of competition, the FTC found that the companies had violated the FTC Act by inviting such agreement to raise prices. The FTC order in that case similarly barred the companies from:

  • Communicating with their competitors about barcode rates or prices;
  • Entering into, participating in, maintaining, organizing, implementing, enforcing, inviting, offering, or soliciting any agreement with any competitor to divide markets, allocate customers, or fix or maintain prices; and
  • Urging any competitor to raise, fix, or maintain prices or to limit or reduce the terms or levels of services they provide.

The FTC levied similar allegations and required analogous restrictions in other prior cases like In re Step N Grip, LLC (FTC 2015)[3] and In re Valassis Communications, Inc. (FTC 2006).[4] The Valassis case is unique in that FTC alleged that the invitation to collude was made during a public analyst conference call as opposed to through private communications.

These cases are an important reminder that the FTC will liberally continue to explore ways to utilize Section 5 as its “catch-all” provision of choice to punish conduct – even unsuccessful conduct – that it might not be able to prosecute under the Sherman or Clayton Acts. And of course, bear in mind that these investigations can be highly embarrassing, as client emails and statements will be captured in full detail in FTC filings. In the 2014 case, an executive’s message urging his competitors to raise prices was published in its entirety with such memorable phrases such as “Here’s the deal, Phil. I’m your friend, not your enemy … This problem [of constantly lowering our prices] has to stop…” This text will haunt the author for some time. 

Bottom line: The FTC absolutely will investigate communications with competitors about competitively sensitive matters – period. As such, clients must stop all discussions with their competitors about topics relating to competition, customer allocation, and/or pricing and should consult antitrust counsel immediately to assess potential exposure in the event they have inadvertently participated in any such discussions or communications.