antitrust scrutiny: ways to plan, prepare, and respond

© 2014 Dickstein Shapiro LLP. All Rights Reserved.

Antitrust Scrutiny:Ways to Plan,Prepare, andRespond

December 17, 2014

Jennifer HackettJames Robertson Martin

#3303584

dicksteinshapiro.com |


Jennifer Hackett

• Partner in Dickstein Shapiro’s Antitrust & FinancialServices Practice. She has experience in all aspects ofcomplex litigation, with a particular focus on antitrustlitigation, and has been instrumental in trials,international arbitrations, settlement negotiations,and federal appeals.

• Jennifer also provides antitrust compliancecounseling in a variety of scenarios and advises clientson all aspects of premerger notification, includingHart-Scott-Rodino filings and gun-jumping issues.

• http://www.linkedin.com/pub/jennifer-duncan-hackett/1b/901/889

202-420-4413 | [email protected]

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http://www.linkedin.com/pub/jennifer-duncan-hackett/1b/901/889




James Robertson Martin

• Partner and business development head in DicksteinShapiro’s Antitrust & Financial Services Practice. Hehas experience in all aspects of complex antitrust andfinancial services litigation on a national andinternational scale.

• Jim has represented corporations both on the plaintiffand defense side in cases ranging from cartels tomonopolization. Jim has also represented clientsbefore the Department of Justice and counseledcorporations on compliance and merger issues. Jim isa frequent speaker on the international reach of theSherman Act.

• http://www.linkedin.com/pub/james-robertson-martin/a/584/55a

202-420-2239 | [email protected]

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http://www.linkedin.com/pub/james-robertson-martin/a/584/55a



© 2014 Dickstein Shapiro LLP. All Rights Reserved.4

Topics

• Designing and implementing an internal program toensure compliance

• Guidelines for competitor collaborations

• Implementing an internal program to ensure compliancewith merger enforcement rules

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The Components and Importance of aSuccessful Compliance Program

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Purpose of an Antitrust Compliance Plan

• Prevent and detect potential violations

• Do what works for your company

• It’s just good business

• The DOJ will look at your plan if things go wrong

– Chapter 8 of the U.S. Sentencing Guidelines provides forconsideration at sentencing for companies with an effectivecompliance and ethics plan



Code of Conduct

• The first step of any compliance plan is to set standardsfor the corporation

• The Code of Conduct should contain a short and simplestatement on antitrust and competition law

• Consider prohibiting certain categories of antitrustoffenses as a matter of corporate policy, even if not illegalin every jurisdiction in which the company does business

• Many companies now post their Code of Conduct online



What’s the Problem?

• Section 1 of the Sherman Act prohibits

– Agreements that restrain competition

• Section 2 of the Sherman Act prohibits

– Conduct by “monopolists” that restrains competition

– Basis for Hart-Scott-Rodino rules

• FTC Act

– Bars unfair competition

• State antitrust and unfair competition laws

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Look Left and Right, Down, and Up

• Horizontal (Sales/Marketing)

– Price fixing

– Bid rigging

– Market division

• Down

– Tying

– Refusals to deal

– Resale price maintenance

• Up

– Buyers cannot collude either

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Antitrust Compliance Manual

• Include a clear statement of the company’s commitmentto comply with antitrust laws

• Do’s and don’ts should be in plain language that everyemployee can understand

• Consider how many antitrust manuals to adopt (Oneglobal manual? By region? By country?)

• Determine what conduct is prohibited, what conduct ispermitted, and what conduct requires review by counsel

• Keep it simple–be realistic about risk tolerance

• Update as needed



What Makes a Program Effective?

• Personalize it to the business

– What are the risks?

– What aren’t the risks?

• Make it catchy

• Senior management take the lead

• Keep it fresh

• Don’t be a Negative Nelly

• Tie it to risks and company policy

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Integrate Your Compliance Program

• Records retention policy

• Email policy

• FCPA

• Standards of professionalism

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Designing and Implementing an InternalProgram to Ensure Compliance

• Prepare for issues up, down, and sideways

• Look up

– Buyer coordination

• Look down

– Resale price maintenance

• Look sideways

– Competitor interactions are fraught with risk

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Other Best Practices

• Be proactive–reevaluate compliance programs annuallyto account for changes in your business or the law

• Make compliance an integral part of your company’smission statement–it begins with the leadership

• Ensure that your compliance department has adequatefinancial resources and personnel

• Take reasonable steps to protect data

• Know when to involve counsel and consultants



Audits and Risk Assessments

• Conduct regular antitrust audits, preferablyunannounced, to monitor compliance

• Review files of employees with competitive decision-making authority or sales and marketing responsibilities

• Interview employees about their contacts withcompetitors

• Take steps to preserve privilege



Training

• The goal is to train employees to spot risks

• Keep it simple

• Work with outside counsel todesign an effective andwell-rounded training program

• Train employees regularlyand document it



Awareness Is a Two-Way Street

• Alert buyers to competition issues and “storm warnings”

• Monitor product pricing and explanations for changes inprices

• Bring concerns to counsel

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Legal Strategies to Avoid Victimization

• Require certification that bids are competitive

• In longer-term contracts, require regular certifications ofcompliance with antitrust laws

• Require agreement to abide by a code of conduct

– Do not engage in unfair, deceptive, or misleading practices

– Compete fairly and comply with all applicable competition lawsaround the world

– Comply with supplier’s own code of conduct

• In addition to deterrence effect, bolsters record of duediligence

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Guidelines for Competitor Collaborations

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Competitors Can Work Together

• Non-merger agreements among competitors

– Joint ventures

– R&D programs

– Standard-setting organizations

– Trade associations

– Licensing arrangements

– Strategic alliances

• Unlike mergers, competition continues

• Identify and document the good reasons

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The Good Reasons

• Consumer benefits

– Lower prices

– Better quality products

– Faster innovation

• Examples

– Combined R&D may lower costs of research

– Combining technical expertise with manufacturing capabilitiesmight increase output or increase quality

• Document it (did we say that already?)

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The Bad Reasons

• Risks of collusion

• Limit independent decision-making

– Increase prices

– Decrease output

– Harm quality or reduce incentives to innovate

• Not always a “per se” violation, e.g., price-fixing or bid-rigging

• Evaluate the overall effect

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Implementing an Internal Program toEnsure Compliance With MergerEnforcement Rules

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The Hart-Scott-Rodino (HSR) Act

• Provides DOJ/FTC chance to review potentiallyanticompetitive mergers and acquisitions beforeconsummation

• Avoid the practical complications of unwinding ordivestiture after consummation

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Key Concerns

January 2012Privileged and Confidential 25

• Will the proposed transaction give the acquiring personmarket or monopoly power?

– Power to raise prices

– Power to reduce output or quality

– Without losing substantial market share

• Will the transaction reduce competition by making iteasier for remaining competitors to collude?

– Coordinate pricing

– Coordinate output

– Allocate markets



Don’t Be Gun Jumping

• During the HSR waiting period and up until the deal isconsummated, the parties must remain separate,independent entities and preserve any competition thatexists between them

– Includes transfer of operational control or prematurelyintegrating the businesses

– Includes exchanging competitivelysensitive information that couldfacilitate collusion or reducecompetition

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Transfer of Beneficial Ownership

• HSR Act prohibits parties from effectively transferring“beneficial ownership” of seller’s business to buyer untilthe waiting period has ended

• Section 1 of the Sherman Act prohibits merging firmsfrom engaging in coordinated activities that adverselyaffect competition—particularly where not reasonablynecessary to facilitate the transaction

• Must continue to operate independently andcontinue to compete

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Competitively Sensitive Information

• Would you want the other sideto have the information if thedeal fell apart?

• If not, it is probablycompetitively significant

– Current or future customer-levelpricing, cost, marketing, or sales data

– Future R&D projects

– Output or capacity utilization plans

– Forward-looking strategic plans

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Competitively Sensitive Information (cont.)

• Need-to-know basis only

• Reasonably necessary for due diligence or transition

• Safeguards:

– Share only aggregated, historical data

– Wall-off customer-facing sales personnel or others with sales,pricing, or marketing decision-making authority

– Establish a clean team

– Employ third-party analysts

– Sign nondisclosure agreements

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HSR Document Productions: Item 4(c)

• “Competitive analyses”—market shares, competition,competitors, markets, sales growth, or expansion intoproduct or geographic markets

• Any kind of document—emails, handwritten notes,presentations, third-party memoranda, and analyses

• Created at any time up until the day of filing

– Business people have an ongoing responsibility to forward newdocuments to counsel

• Can only redact for privilege

– Exception: Board meeting minutes

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Preparing the Filing: Item 4(d)

• Three types:

– Confidential information memoranda (CIM)

– Third-party analyses (investment bankers, consultants, etc.)

– Synergies and efficiencies analyses (sales and revenue synergiesor cost saving efficiencies)

• Prepared by or for, or received by,an officer or director

• Within one year before filing

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What NOT to Do

• DON’T transfer assets, stock, or operational controluntil the waiting period is over

• DON’T restrict seller’s ability to conduct businessin the ordinary course

• DON’T prematurely integrate the businesses, includingoperations, systems, or human resources

• DON’T hold the businesses out as a combined entity

• DON’T agree on prices, sales terms, customers, or territories

• DON’T coordinate bidding, production, purchasing,marketing, or promotions

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What to Do

• DO conduct reasonable and customary due diligence

• DO continue to operate as separate businesses

• DO continue to compete vigorously

• DO make pricing, sales, and marketingdecisions unilaterally

• DO form transition teams

• DO seek legal advice before engaging in any conduct thatmight be questionable under antitrust laws

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Consequences

• Enhanced agency scrutiny

• Delayed closing

• Invites a second request

• Penalties even if the deal is otherwise approved—up to$16,000 per day, per gun-jumping violation

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$900,000 Smithfield Foods, 2010

$1.8 million Qualcomm, 2006

$5.67 million Gemstar-TV Guide, 2003



Ancillary Restraints: Practice Tips

Employment Agreements

• The following restrictions should have a solid businessjustification:

– The duration of the noncompete must be reasonable, probablynot to exceed three years (although this is fact specific)

– The scope of the noncompete should be tailored to theemployee’s type of work

– The geographic scope should be as narrow as possible

• If the noncompete is tied to a profession where there is alimited supply of workers, like doctors or att0rneys, itmay attract additional scrutiny

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Ancillary Restraints: Practice Tips (cont.)

Business Transactions

• Restrictions on length of time and geographic scopeshould be reasonable

• Make sure that all restraints have legitimate businessjustifications and be prepared to show why the restraintpromotes competition

• Narrowly tailor the noncompete to the line of business ortype of activity so that it does not go beyond the scope ofthe transaction

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Ancillary Restraints: Practice Tips (cont.)

CONSULT WITH COUNSEL EARLY AND OFTEN

• Allowing the business principals to negotiatenoncompetes can cause a major headache, especially ifthe noncompetes are deal-breakers

• Examples:

– Reciprocal noncompetes might seem logical, but an agreementthat buyer not compete with seller can raise a lot of red flags

– This is particularly true in deals involving IP and trade secrets,which often can be dealt with by carefully defining the scope ofthe license rather than being expressed as a noncompete

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Federal Trade Commission

• HSR Review

– 1,429 transactions reported in FY2012

– 25 FTC merger enforcement actions—1.7-percent chance

• Priorities

– Consumer privacy and data security

– Healthcare—46 percent of enforcement actions between 2008and 2012

– High-tech industry

– Deceptive advertising

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Federal Trade Commission (cont.)

FTC/DOJ Enforcement Examples

• Actavis

– Challenged Watson Pharmaceuticals’ proposed acquisition ofActavis for $5.9 billion

– Settlement requires sale of rights and assets to 18 drugs, andrelinquishing of rights in three others, to protect competition inthe market for generic drugs

• Flakeboard

– DOJ brought charges against Flakeboard and SierraPine for gun-jumping–parties settled for almost $5 million

– Deal was ultimately unwound

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Q&A

40dicksteinshapiro.com |12/19/2014 40




Contact

James Robertson [email protected]://www.linkedin.com/pub/james-robertson-martin/a/584/55a

Jennifer [email protected]://www.linkedin.com/pub/jennifer-duncan-hackett/1b/901/889

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