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DOJ Nixes No Cold Call Agreements

By Elenore Cotter Klingler, Litigation News Associate Editor – December 30, 2010

Several high-profile Silicon Valley companies, including Google Inc., Apple Inc., and Pixar, have settled with the U.S. Department of Justice (DOJ) in a civil antitrust proceeding and consented to end their agreements not to “cold call” one anothers’ employees.


No Cold Call Agreements
Following a year-long investigation, the DOJ filed a complaint in the U.S. District Court for the District of Columbia alleging that certain “no cold call” agreements entered into by Google, Apple, Pixar, the Intel Corporation, Adobe Systems, Inc., and Intuit, Inc. were “facially anticompetitive” and violated Section 1 of the Sherman Act. At the same time the complaint was filed, the DOJ proposed a final judgment to remedy the violations.


According to the competitive impact statement filed by the DOJ to support its proposed final judgment, the companies were each involved in bilateral agreements not to recruit new employees from key competitors through cold calling. According to the statement, “[c]old calling involves communicating directly in any manner . . . with another firm’s employee who has not otherwise applied for a job opening.” The DOJ asserted that senior executives in each company put express agreements into place to stop cold calling and enforced them. The agreements allegedly limited competition and were detrimental to the employees, whose job opportunities were limited by the companies’ decisions not to cold call them.


The defendants stipulated to the DOJ’s proposed final judgment. It requires the companies to abandon their no cold call agreements and file reports of compliance with the DOJ for five years. The final judgment permits limited no cold call agreements for joint ventures and other pro-competitive purposes.


In a post on its Public Policy Blog responding to the announcement of the settlement, Google’s Associate General Counsel Amy Lambert stated that Google entered into the no cold call agreements to protect its relationships with its business partners and continued to recruit employees through other means such as job fairs and postings. Lambert stated in the blog entry that Google abandoned its no cold call policy in 2009 after the DOJ began its investigation. Intel spokesperson Chuck Malloy told reporters that the company did not believe its actions were illegal. Adobe and Intuit also released statements agreeing with that sentiment.


Agreements Actually Illegal?
D. Alicia Hickok, Philadelphia, cochair of the ABA Section of Litigation’s Antitrust Litigation Committee, believes there is a real question about whether the agreements were actually per se violations of the Sherman Act. “Reading between the lines, the DOJ is being very careful how it is articulating its position, but it reads almost the opposite of the way a court of appeals decision would read,” she says. The primary issue is whether a no cold call agreement is a “naked restraint” on competition, which violates the Sherman Act on its face, or whether the agreement should be evaluated under the “rule of reason.” The rule of reason analysis involves a more factually intensive review of the companies’ specific conduct. Hickok believes a court of appeals would be likely to evaluate the agreements under the rule of reason analysis, which is not the position the DOJ asserts.


“I don’t think the DOJ is really stepping out and trying to expand per se violation,” says Bradley C. Weber, Dallas, cochair of the Section of Litigation’s Antitrust Litigation Committee. Still, he believes that the DOJ perhaps wanted to “reestablish precedent” regarding these types of agreements.


Reactions to the Settlement
Hickok and Weber agree that the decision to settle may not have been an enormous concession for the companies. Hickok notes that there are lots of areas of business where a company “would have limited success in cold calling people” and “at some point you would say that it’s not worth it to do that.” By settling, however, the companies lose the opportunity to contest the DOJ's characterization of the conduct. “By agreeing to the settlement, they are acknowledging the DOJ’s position on the per se analysis,” Weber says.


Though not a court opinion with precedential force, companies will have to take notice of the settlement ending these no cold call agreements. “Clearly, if you’re a business lawyer advising a client on antitrust compliance, that’s another thing to add to your list of things they shouldn’t be doing,” says Weber. Hickok observes that the antitrust attorney community has been paying attention to the settlement. “It certainly raised antennae for people,” she says.


Keywords: litigation, Department of Justice, antitrust, cold call agreements


 

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