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Many small businesses think that antitrust applies only to big business, and it’s one area of law they just don’t need to worry about. Don’t fall into that trap.
There are three common misconceptions about antitrust.
One is that only behemoth companies the size of Microsoft need to worry about antitrust. Wrong. While some big companies have grabbed the media spotlight lately, smaller companies such as Pikes Peak Towing Association and Rocky Mountain River Outfitters have faced antitrust charges in Colorado.
Another fallacy is that antitrust enforcement is dead. Also wrong. Both federal and state antitrust enforcement agencies stay busy identifying and prosecuting potential antitrust violations.
The third misconception is that only top executives face any risk. While it’s true that top managers are more likely to be held personally liable for antitrust violations, anyone representing the business can violate the antitrust laws on behalf of the company – and be found personally liable.
Knowing the basics of antitrust law will help you avoid an inadvertent antitrust problem. Here are four things to do to stay out of antitrust trouble:
- Spot potential antitrust issues
- Understand your industry
- Adopt preventive measures
- Hire knowledgeable outside counsel.
Antitrust laws are based on the idea that competition creates the largest choice of products and services, with the widest range of quality and price. Laws keep competition robust by preventing unreasonable barriers to competition.
However, the rules are no guarantee that competitors will be equal.
There are two flavors of antitrust – monopolization and agreements by competitors to restrain trade.
Agreements that restrain trade include price fixing, bid rigging, allocating customers or markets, and boycotting competitors or suppliers. It doesn’t matter how big or small your business is, as certain agreements are illegal regardless of your justification. More importantly, they’re criminal.
For example, agreeing with competitors to hold the line on price reductions or to buy from a supplier only if the price stays at a certain level is considered “price fixing.” Having a “gentleman’s agreement” that one dairy service will serve the east side of town and another will solicit only on the west side is illegal. Understandings by competitive bidders to rotate bids or to put in a high bid one time and a low bid the next to “spread the business around” are also illegal and can be criminal violations.
The standard for proving an agreement is quite low; exchanging price or cost information and then acting in concert can be enough.
Scenarios that can lead to anticompetitive agreements include discussions among competitors about best practices – called “benchmarking” – that go too far, trade association meetings where prices are discussed, proceedings that set standards, discussions or requests for proposals with competitive bidders, and loose talk while socializing with competitors.
“Monopolization” is unilateral conduct by one firm that unduly restricts competition. Here, size and position in the market matter. Monopolization, or abuse of market power, can take many forms, including predatory pricing, improper refusals to deal, and “tying,” which is forcing a customer to buy two products when the customer wants only one.
Interestingly, even small businesses can dominate a market if the product is unique and the market is small. In addition, mergers and acquiring ongoing business assets may require government authorization before the deal can close.
Understand Your Industry
Some industries are more prone to antitrust challenges than others. Antitrust troubles come more often to businesses emerging from regulation and duopolies and oligopolies – where a market is controlled by a small number of companies.
Is your business one that engages in competitive bidding with a stable cast of competitors? Do any of your products hold a large position in a market? Is there a history of antitrust enforcement in your industry? If any of these conditions apply, you’ll want to be especially alert to antitrust concerns.
The first line of defense is knowledgeable employees. It’s wise to provide frequent training for all managers, especially those in sales, marketing, strategy, deal making and procurement. Short vignettes adapted to your industry and which resemble recent cases, along the price tags – fines, attorneys’ fees, jail terms – of those cases make a lasting impression.
The Microsoft trial has highlighted many not-so-humorous e-mail messages that may resonate with your employees. Use the same rule that applies in airports – never joke about violating the law.
Pithy guidelines for recurring situations can also provide a handy way to remind those in your business what you expect. For example, guidelines on how to do benchmarking right and how to avoid potential anticompetitive pitfalls in trade association settings can be used repeatedly.
Make it a practice to review sensitive documents such as strategy papers, marketing plans and agendas for trade association meetings before you put them into final form. Nothing can be more heart-stopping than seeing a less than perfect document that has already been sent, or coming across a loosely-worded version of a gung-ho marketing manager’s plan to improve margins across the board by reaching a gentlemen’s agreement on pricing.
It isn’t kids who say the darnedest things – it’s business executives who use purple prose and hyperbole without regard for how others will view their language. If you’d be embarrassed to see the words on the front page of your local paper, don’t say it or write it.
Finally, develop a document retention plan and encourage your staff to follow it, so your files stay current.
Do I Need A Lawyer?
Some antitrust issues require analysis and experience. Pre-merger filings, criminal investigations and allegations of monopolization require the advice of seasoned outside antitrust counsel, one who understands a client’s business and industry.
Antitrust damages, if proven, are multiplied by three – so violations can be very expensive. An ounce of prevention can prevent expensive heartache.
Sharon Devine is associate general counsel for U S West, Inc., a telecommunications company headquartered in Denver. She has practiced law for 25 years, first with the Federal Trade Commission, and since 1982, for U S West. She can be reached at firstname.lastname@example.org.