In this rapidly changing environment of the COVID-19 crisis, the need to understand how your industry is tackling business disruptions and the ensuing economic impact is more critical than ever.
This Alert provides practical guidance on key criminal antitrust risks arising out of the current crisis and cautions against certain forms of competitor coordination to manage the fallout, especially in light of late-breaking warnings about these collaborations in a joint statement by the Federal Trade Commission (FTC) and the Department of Justice (DOJ) issued on April 13, 2020.
Initial guidance from antitrust enforcement agencies and law firms during the crisis has emphasized a somewhat more permissive approach by the agencies to competitor collaborations, especially where those collaborations increase output of critical medical supplies and other essential goods, improve distribution systems in the crisis, and develop tools to increase productivity within the confines of stay-at-home orders. Many antitrust agencies have also made available informal fact-specific guidance in the form of comfort letters to help avoid uncertainty and indecision. The message is clear that as long as the collaborative effort increases output and does not seek to coordinate or increase prices, agencies will not second-guess whether the collaboration was necessary or whether it may have some countervailing anticompetitive effects.1
For instance, on March 24, 2020, the FTC and DOJ issued a joint statement regarding COVID-19. This joint statement makes clear that there are ways for competitors to engage in collaborations that do not violate the antitrust laws—for example, if those collaborations address shortages of medical supplies, such as ventilators, medications, and personal protective equipment for healthcare workers and first responders. These types of collaborations that lead to increased output or enhanced efficiencies clearly have a procompetitive goal and therefore do not carry significant antitrust risk. In fact, DOJ recently issued a business review letter in response to guidance sought by five medical/surgical distributors regarding joint efforts to increase the supply of medical equipment. DOJ’s letter emphasizes that procompetitive collaboration is lawful under the antitrust laws.
The agencies warn, however, that their encouragement of procompetitive collaboration should not obscure the reality that the crisis and the rapid and severe economic downturn substantially increase the risk of companies crossing the line into a criminal antitrust offense. The line between permissible conduct and conduct that violates the law may not always be intuitive. The desire to develop “industry solutions” or to avoid being an outlier in responding to rapid decline in demand and output can be strong. Taking a pause from cut-throat competition may be a natural impulse. While restrictive agreements between competitors may seem necessary now, they will not look that way after the fact and may result in criminal exposure. Compliance officers should focus on conduct that may go unnoticed by antitrust agencies in a time of crisis but could emerge as criminal or civil antitrust investigations when the dust settles.
The unique character of the current crisis presents significant risks. This alert identifies two such risks: coordinating around labor markets and maintaining the status quo. The first stems from rapid job losses, and is a risk that the FTC and DOJ explicitly warned about. The second stems from the unique character of this crisis. As Governor Andrew Cuomo recently stated, “None of this has been done before.” While he was addressing the public health crisis, business leaders have also not dealt with this significant an upheaval before. This uncertainty is a potential breeding ground for collusive behavior.
Coordinating Around Labor Markets
On April 13, 2020 the FTC and DOJ issued a joint statement warning employers that the agencies will enforce the antitrust laws against those who seek to exploit the pandemic to harm workers. The statement affirms the importance of competition for American workers and notes that the agencies are on high alert for employers, staffing companies, and recruiters who engage in collusive or anticompetitive conduct.
This is consistent with DOJ’s current criminal enforcement strategy and its particular emphasis on no-poach investigations. In addition to avoiding no-poach agreements (i.e., agreements not to hire a competitor’s employees), companies should not enter into agreements with competitors to suppress or eliminate competition with respect to salaries, wages, compensation, benefits, hours worked, or headcount reductions. Companies should also stay away from the unlawful exchange of information relating to terms of employment, hiring, recruiting, or retaining employees.
Maintaining the Status Quo
Businesses should also exercise caution around innovative ways to maintain the status quo in the face of unprecedented challenges and decreased demand. It may be tempting for employees to confer with their competitor counterparts to figure out how the market is dealing with similar challenges and develop creative ways to increase demand. However, this type of information sharing can easily cross the line into informal understandings or agreements that raise substantial criminal antitrust risk. For instance, one of the most litigated criminal antitrust cases involved an agreement among competitors to respect and stay away from each other’s key customers.2 That agreement grew out of the 1997 Asian financial crisis, which had caused a rapid decline in their business and threatened the disruption of their services. The current crisis, of course, dwarfs that event.
In addition to agreements to avoid taking principal customers, other agreements to “respect” each other’s businesses should be of critical concern. For instance, discussions about respecting each other’s critical supply chains, geographic sales focus, employee relationships, or distribution channels could all raise significant antitrust risk.
Guidance for Minimizing Antitrust Risk
- If you are considering participating in a legitimate competitor collaboration, consult with antitrust counsel about whether to seek a business review letter from the relevant antitrust agency. In addition, document the procompetitive goal of the coordination and restrict information sharing to items reasonably necessary to achieve that goal.
- Document independent business justifications for any shifts in strategy. This documentation will serve as evidence that any change in business practices was due to unilateral economic rationales and did not arise from horizontal agreements among competitors.
- Be cognizant of public statements. Messaging around new market strategies should be carefully constructed, and public statements should be reviewed by antitrust counsel.
- Assume that everything you write could one day end up in front of a judge. Any contact with a competitor is sensitive and may be used as evidence of an illegal agreement. This is particularly significant in today’s environment where people are working from home and increasingly communicating via email and text message, creating evidence at a higher volume.
- Assess the likelihood of private litigation. Even if enforcement agencies may exercise deference, class action litigation surrounding the economic impacts of the crisis is already burgeoning.3