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Keys to Compliance—Practical Antitrust Issues Involving Trade Associations

By Matthew J. Bester and Creighton J. Macy – November 5, 2015


An executive at your company comes to you about a new trade association she would like to join on behalf of the company. The association includes your competitors. The executive would also like to attend the association’s meeting in Florida next week, with several other colleagues. This will encompass three days of in-depth meetings on various aspects of the industry, including group-specific break-out sessions and several social activities. While your response is likely that participating in trade association meetings with competitors can be beneficial, you also know it carries risk.


To help you think through these important matters early, below is a practical guide to dealing with antitrust issues involving trade associations. This article offers best practices for you and your clients to employ when considering whether to join a trade association and how to participate in trade association activities. Many of these principles also apply more generally when advising executives about collaborative activities with competitors. The costs of getting it wrong are high: Competition law enforcers around the world have targeted illegal agreements among competitors formed at trade association events, resulting in violations and fines.


Of course, each instance must be evaluated on a case-by-case basis. We recommend you contact antitrust counsel early in the process so that he or she can provide proper case-specific guidance.


Overview
There are many good reasons for companies to participate in trade association activities. For example, collaborating with colleagues across an industry may promote more effective solutions to problems that affect the industry as a whole, allow for the gathering of important industry-wide data, or provide useful training opportunities. Trade associations are a forum for competitors to meet face-to-face; thus, these events also present the possibility of facilitating conduct that violates antitrust laws. Specifically, section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, prohibits agreements among competitors that restrict each other’s freedom to make independent business decisions in matters that may affect prices, customers, output, and the quality of their companies’ products. Similar statutes across the globe also prohibit this conduct.


Enforcement agencies such as the Federal Trade Commission (FTC) and U.S. Department of Justice recognize the benefits that trade associations can provide to consumers. But, as former-chairman of the FTC Jon Leibowitz noted in a speech, they have also seen “the ugly” in trade associations and the potential for antitrust harm that trade association memberships can create. In general, many of the most problematic agreements in the trade association context center around an association’s restriction of its members’ ability to compete for (or solicit) customers or to compete with one another on key aspects of the competitive process (e.g., price or costs). Recent examples of restrictions that have placed trade associations squarely in the sights of antitrust enforcers include rules that prohibited members from pitching a competitor’s customers, offering discounted prices to another member’s customers, offering comparative advertising, offering services below a certain price threshold, and enacting rules obstructing members’ ability to compete with each other. Enforcers will also pay particular attention to rules (or conduct) that facilitate the improper sharing of competitively sensitive information (e.g., individual company pricing and cost information) among members.


When counseling your executives on trade association memberships and events, there are three areas of inquiry. First, before your client joins the association, review the association’s bylaws and antitrust compliance policy. Second, before your client attends an association event, review the meeting agendas and the association’s antitrust meeting guidance. Third, prior to a meeting or event, instruct your client on proper conduct at the meeting itself. As you will see below, much of the legal diligence and risk mitigation in trade association events comes long before any of your executives set foot in an association meeting.


1. Counsel, I would like the company to participate in the trade association. Can I join?
The first step in assessing whether there is antitrust risk in joining a trade association is to look at its governing documents, which are commonly in the form of bylaws. A trade association’s bylaws or other governance documents provide the organizational rules for the group. In their enforcement actions, antitrust agencies routinely review trade association bylaws as support for evidence of illegal conduct by an association’s members. If done improperly, this may be the “agreement among competitors” that will trigger antitrust scrutiny. Many times, even though these rules may appear on their face to benefit customers, courts have not hesitated to condemn them under the antitrust laws because, in fact, they restrict competition among members. In a notable example, the FTC found illegal an association of legal support professionals’ code of ethics that not only banned comparative ads but also prevented members from offering discounted rates to another member’s clients or recruiting another member’s employees without giving prior notice. See Statement of the Federal Trade Commission, In the Matter of Cal. Ass’n of Legal Support Prof’ls, No. 131-0205 (Dec. 16, 2013). Last, if the association your company is looking to join does not have any bylaws at all, it should be an immediate red flag in your review.


On the other hand, good bylaws set clear expectations that members will adhere to all legal requirements and not use association events as a forum to take joint actions that restrict competition. They should make clear that there are subjects that may not be discussed among competitors in a group setting like a trade association function, or at all, such as sharing competitively sensitive information, terms offered to specific customers, or pricing of specific products. They also need to have objective requirements for membership that cannot be used to unreasonably exclude otherwise qualified members. If the association will promulgate any technical standards or certification programs, it must be done in a way that does not unfairly disadvantage competitors outside the association. In addition, the association should create clear rules on how (and what types of) data will be shared among members if the association conducts activities such as benchmarking.


Trade associations often have codes of ethics that affect the business conduct of their members. Many of these codes, when looked at through an antitrust lens, are perfectly appropriate where they require members to improve services to their customers or engage in honest dealings. However, these codes can violate the antitrust laws when used to harm the competitive process. For example, the FTC found illegal the code of ethics of an association of music teachers that prevented members from soliciting clients from a rival, in effect preventing members from offering services to students who were already taking lessons from another member. See Statement of the Federal Trade Commission, In the Matter of Music Teachers Nat’l Ass’n, Inc., No. 131-0118 (Dec. 16, 2013). Other examples of violations include restricting competitive bidding, establishing rules on when and where members can work, and setting the prices or commissions that their members can charge.


It is not unusual for trade associations to have a separate antitrust compliance statement or addendum to the bylaws. These statements are very helpful to spell out in detail what conduct may be permitted and what may not, and should be tailored to the relevant industry. For example, in an association of pharmaceutical companies, there are antitrust risks in discussing drug development pipelines. Similarly, in an association of real estate agents, there are antitrust risks in discussing sales commission discounting. Good antitrust compliance statements will address risks specific to the members.


2. Counsel, we’re preparing to attend the trade association meeting. Are there any antitrust issues to be aware of?
Before any of your executives attend a trade association meeting, there are three key points to look for to ensure that it will be run in compliance with antitrust principles. First, make sure that there is an agenda and that none of the topics could lead to obvious antitrust problems. Screening the agenda for problematic topics (e.g., a discussion of individual company pricing practices) will allow you to at least raise questions to the association in advance and make sure the discussion will steer away from topics that create antitrust risk. Remember that discussions outside the formal meetings are subject to the antitrust laws just as any other part of the association meeting, a point that should be reinforced with your executives.


Second, if the meeting agenda or your discussions with the executives who will be attending the meeting leave you concerned, call the association. Trade associations should be well versed in the risks of their activities and often have an antitrust lawyer on staff or retained who can respond to these queries. Indeed, many associations require their antitrust lawyer to attend all meetings to help mitigate the antitrust risks. It is much better to work out your concerns ahead of the meeting than have someone from your company attend the meeting where the subjects being discussed or the lack of appropriate precautions creates undue risk for your company and executives.


Third, it is also useful to distribute your own set of internal guidance for any executives attending trade association meetings. Good guidance is typically a short document (preferably 2–3 pages) that outlines problematic discussion topics and what to do if such as topic is raised. The guidelines should make clear that the following are forbidden: (1) discussions among competitors concerning individual company pricing, strategic plans, customers, or product pipeline information; and (2) agreements among competitors on production, sales territories, product development, customers, or not working with a competitor, supplier, or customer. It must also be conveyed to your executives that an agreement in this context can mean something far less formal than a signed agreement; rather, it can encompass any written, oral, or even nonverbal agreement where there was a common understanding. As you know, striking the right balance is crucial between providing useful information that is at the same time understandable by busy business executives who are typically focused on issues other than antitrust compliance at trade association meetings.


3. Counsel, I’m now at the meeting. What antitrust issues do I need to keep in mind?
When at the meeting, your executive should be armed with four simple points: (1) stick to the agenda—and freely engage in conversations that represent the approved purpose of the meeting and association—at all times; (2) do not engage in conversations dealing with competitively sensitive information that are not previously approved; (3) do not discuss company-specific confidential information; and (4) promptly leave if inappropriate conversations occur. You should also be clear to your executives that not following these simple points could expose them and the company to significant antitrust risk, including fines and jail time.


Once at the meeting, the process and structure should generally feel familiar to your company’s executives if the proper groundwork was laid beforehand. To start the meeting, many associations will read or circulate an antitrust compliance statement so participants are clear as to what they can and cannot do. The association’s attorney often attends the meeting and will let participants know that he or she is available to answer questions and will be monitoring the discussions.


As the meeting progresses, it is particularly important to adhere to the agenda and stay away from topics that require the disclosure of confidential company-specific information as described above. There should be a person designated as the leader of the meeting, and that person should also be tasked with ensuring that the discussion does not stray from the agenda. Someone at the meeting should be in charge of keeping minutes so there is a written record of what was discussed.


If it becomes apparent during the meeting that attendees are straying from the agenda and are discussing risky topics, it is crucial that your executive understand what to do next. The executive should make it clear to the other attendees that the discussion has strayed off the agenda into an area that is potentially problematic. If there is a lawyer in the room or on-site, the executive should immediately get guidance and ask that the problematic discussion be put on hold in the meantime. If she cannot obtain guidance and the discussion continues, you should instruct your executive to leave the room, announce the reason why, and ask that the minutes reflect that she has left. It will be important to document steps the executive took, and she should also be instructed to call you immediately in the event that these issues occur.


Conclusion
Given the many benefits that Trade Associations can offer a company and its employees, participation in the right associations should not be deterred. As long as some basic compliance steps are taken both before and at trade association events as described above, your company’s potential antitrust exposure will be significantly diminished.


Keywords: litigation, corporate counsel, antitrust, trade associations, competitors


Matthew J. Bester is director of competition law at Accenture in Arlington, Virginia, and Creighton J. Macy is an associate with Wilson Sonsini Goodrich & Rosati PC in Washington, D.C.


 
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