IMPORTANT TRENDS IN ANTITRUST COMPLIANCE

ENFORCEMENT & LITIGATION FOR MANUFACTURERS

Edwardsville

(Madison County)

130 N. Main St.

(618) 656-0184

Chicago

30 N. LaSalle

Suite 2900

(312) 230-9100

Springfield

(General Liability)

4340 Acer Grove

(217) 528-3674

Springfield

(Environmental)

3150 Roland Avenue

(217) 523-4900

St. Louis

211 N. Broadway

Suite 2700

(314) 241-6160

PROVEN LAWYERS

IN THE RIGHT PLACES

www.heplerbroom

Glenn E. Davis glenn.davis@heplerbroom.comPartnerHeplerBroom LLC

Successfully serving clients with challenging, complex legal matters for over 33 years domestically and internationally.

Deep experience with antitrust and distribution matters, securities litigation, corporate litigation and compliance, internal investigations, and intellectual property litigation.

Recognized leader in business litigation in court and in law firm management: experience that matters. Published author in ABA Antitrust Section publications and In the Mind Series on Antitrust Litigation Winning Strategies and Missouri Bar Deskbooks on Antitrust and Securities litigation.

Client Value. Thrives on efficiently helping clients achieve their objectives and move their business forward, as an integral part of their team.

Glenn E. Davis

• Licensed in Missouri & Illinois• ABA, Antitrust Section• Charter Member, Litigation Counsel of America, Trial lawyer honorary

society.• Missouri & Kansas Super Lawyer since 2011/ Top 100 Super Lawyers for the

Missouri/Kansas region and Top 50 in St. Louis.• Best Lawyers’ in America since 2003.• Best Lawyers’ 2014 St. Louis Franchise Law “Lawyer of the Year.”• Best Lawyers’ 2015 Missouri Antitrust Litigation “Lawyer of the Year.”• Best Lawyers' 2016 Missouri Antitrust Law "Lawyer of the Year."• AV Preeminent® Attorneys by Martindale-Hubbell.

Our Goals Today

Learn About Antitrust Laws

Consider Key Concepts for Manufacturers

Enforcement and Litigation Trends

Discuss the Importance of Antitrust Compliance

About the Antitrust LawsIn 33 words or less, what are antitrust laws about?

Their purpose is to promote consumer welfare througheffective competition. Competition is protected byprohibiting conspiracies in restraint of trade, unduerestrictions on purchasers, excessive concentrations ofeconomic power and other anticompetitive practices.

Basic Antitrust Laws

Promote Competition

Protect Consumers

Establish Rules to Prohibit Anticompetitive Conduct

Legal Penalties to Punish Violators and Deter Future Violations

Who Do Antitrust Laws Apply To?

Individuals

Business Organizations

Trade and Professional Associations

Non-Profit Organizations

Standard Setting Organizations

The Basic Economics of Antitrust• Free enterprise economy uses competitive

markets to allocate goods & services

• When the forces of supply and demand work freely in open markets, consumers receive: • The best quality products/services

• At the lowest possible prices

• Competition spurs economic performance• Promotes efficiency, creativity, and innovation

• Monopolies, Market Concentration & Collusive Conduct inhibit competition and reduce market performance

ENFORCEMENT MECHANISMS

Department of Justice- Antitrust DivisionCriminal EnforcementCivil EnforcementPre-Merger Review

Federal Trade CommissionCivil Enforcement- FTC ActPre-Merger ReviewConsumer Protection

State Attorneys General

International Regimes

Private EnforcementTreble damage civil litigationClass actions

Intent and Effect May Not Matter

Conduct May be Illegal Regardless of motive or intent

May be Illegal Even if Conduct is Unsuccessful or Fails to Meet Goal

Certain Conduct is Always IllegalPrice Fixing

Customer or Geographic Market Division

Certain Boycotts and Tying Arrangements

Bid Rigging

Mergers/Joint Ventures that create risk of sustained higher prices, reduced output, market coordination

Penalties Are Severe

Companies convicted of antitrust violations pay very large fines

Individuals convicted serve actual jail time and pay substantial fines

Debarment from Federal and State Programs

Defending antitrust claims is very costly and a drain on organizations

Civil actions may result in 3X actual damages plus payment of adversaries’ attorneys fees

ACTIVE CRIMINAL ENFORCEMENT

2014- 19 Jurisdictions levied cartel fines $16 Billion (US)

20 Dawn Raids in US, China and the EU annually

Expanding Charges (i.e., criminal fraud, tax evasion)

Representative investigations/prosecutionsAuto Parts Industry (60 individuals/40 separate companies)($2.6 Billion in fines)Flat Panel Screen ManufacturersFinancial Services Industry Market Manipulation/ Currency Exchange RatesReal Estate

NEW (HEIGHTENED)FOCUS ON INDIVIDUAL LIABILITY

The Impact of the DOJ Yates Memo on antitrust crime

DOJ Plea Deals no longer release former employees

Impact on leniency program and

requirements for credit for cooperation

Non-Prosecution Agreements

Specific Relevant Conduct for Manufacturers

Agreements among Competitors

Relations with Distributors & Customers

Trade & Professional Associations

Section 1 of the Sherman Act

Prohibits agreements that restrain competition

Elements: Two or more entities

An express or implied agreement

An unreasonable restraint on competition• Proved – Rule of Reason (actual and substantial lessening of competition)

• Presumed – Per Se (Automatic) liability

Doctrine of Per Se Illegality

Inherently anticompetitive agreements are:Presumed to restrain competition unreasonably

Are ILLEGAL without the need to prove the relevant market or any anticompetitive effect

May be punished criminally

Can subject firms to enormous liability

Individuals at risk too; criminal liability severe

Red Flags: Per Se Agreements

Agreements to fix or maintain prices • All agreements with competitors to fix or maintain

prices, price levels or terms and conditions of sale are illegal

Boycotts, customer allocations, bid rigging Agreements between competitors to boycott (refuse to

deal with) a customer or supplier, allocate or share customer or geographic markets, or to bid a price or coordinate bids are illegal

Some tying arrangementsTie-in sales are illegal per se when there is sufficient

power in the tying product market to force the sale of the the tied product

Rule of Reason Conduct

Vertical customer and territorial restrictions

Exclusive dealing and requirement agreements

Tie-in sales where market power in tying product is insufficient to warrant per se treatment

Reciprocal dealing – the use of purchasing power to obtain sales

Section 3 of the Clayton Act

Deals with three types of arrangements:Exclusive Dealing Arrangements

Tying Arrangements

Requirements Contracts

Common issues are extent and length of foreclosure

“Incipiency Standard”• Proof of actual adverse competitive effects not required

• Only requires proof of reasonable probability of anticompetitive effects

Section 5 of the FTC Act

Government (FTC) enforcement only

FTC expanding application and theories of liability

Broadly proscribes acts of unfair competition

Concurrent with other antitrust laws

Examples:Commercial disparagement

False Advertising

Industrial espionage

Commercial bribery

Robinson – Patman Act

Prohibits discrimination in pricing and promotional allowances and services

Price discrimination may be illegal where

Two or more contemporaneous sales

Commodities of like grade & quality

Different prices

Substantial adverse effect on competition

Defenses

Cost justification

Meeting Competition

Availability

Changed Conditions

Competitor Relations—Price/Output

Agreement or conspiracy to restrain competition

Price Fixing and Agreements to Restrict Output Always Illegal

All price, discount, rebates, bids, RFP responses, terms and conditions of sale, capacity and resources, marketing or promotions are problematic

Determine Independently

No discussion with Competitors

Competitor Relations—Other Conduct

Market Allocation

Bid Rigging

Collective or Group Boycotts/ Refusal to Deal

Tying sales of services

Resale Price AgreementsVertical price-fixing – an agreement between a

manufacturer and a customer/distributor that fixes the minimum resale price of a product – may violate state antitrust laws or become a rule of reason violation.

Area evolving after recent Supreme Court Case; but State and International rules differ

The antitrust laws, however, give a manufacturer latitude to adopt a policy regarding desired resale prices and to deal only with customers/distributors who independently decide to follow that policy.

Resale Price Agreements (continued)

A manufacturer is permitted to stop dealing with a buyer who breaches the manufacturer’s resale price maintenance policy.

The manufacturer can adopt the policy on a “take it or leave it” basis.

The key: No agreement, express or implied, between the manufacturer and the buyer to fix specific minimum resale prices.

Agreements on maximum resale prices are less likely to be found unlawful because in most situations these agreements can benefit consumers by preventing non-competitive high prices.

Termination for Pricing Policy Violations

The “Pricing Policy” must be followed.

If a buyer advertises or sells pre-announced suggested resale price products below minimum they must be terminated immediately.No structured or staged terminations; e.g., no progressive penalties prior to terminationNo second chances; e.g., no grace periods, extensions or acceptance of

temporary reprievesNo threats of termination or pressure to adhere; e.g., no pressuring distributors to agree to pricesNo communications with outsiders about it;

Distributor Communications

Complaints or information from other distributors may be received and considered, but not encouraged. Distributors supplying such

information should be informed:will exercise its unilateral judgment with the information.

will not take any specific action based on the communication.

will not enter into any Agreement with one distributor concerning manufacturing relationship with any other distributor.

will not engage in extensive or ongoing discussions with one distributor concerning relationship with any other distributor.

Remember . . .anything you say or write about distributors may come out in any future disputes.

Conduct that Invites LiabilityRefusals to deal mid-relationship;

e.g., a manufacturer under a written dealer agreement cannot impose price controls without pre-announcing its terms prior to the agreement.

Pulling territories until distributor adheres to prices; e.g., a manufacturer cannot force a retailer to sell a widget in Kansas at

X price to supply the retailer with widgets for Oklahoma.

Structured termination (three strikes you’re out) policies; e.g., manufacturer cannot have a series of suspensions or penalties

prior to termination.

Threats, intimidation, or coercion; e.g., manufacturers cannot harangue or threaten distributors to induce

pricing compliance.

Conduct that Invites Liability

Enlistment of third parties to enforce;

e.g., manufacturers should not use customers, trade groups, or any one else to enforce its policies.

Conditioning special allowances or price breaks on acquiescence;

e.g., conditioning valuable promotional allowances on price agreements may be seen as coercion.

Terminations at behest of competing distributors.

e.g. manufacturers decisions must be independent and not look like they are part of any Agreement with competing distributors.

(continued)

Trade & Professional Associations

Meetings of actual and/or potential competitors—may evidence agreement

But pro-competitive and lawful normally

Conduct is a problem if activity or focus is on coordinating price, output, or other unlawful agreements

Potential for exclusion to disadvantage competitors of members

Reason for compliance sensitivity

Trade Association Topics

Do Not DiscussPrices

Profits or margins

Discounts

Terms and conditions

Allocation of customers and markets

Refusals to deal with others

OK To DiscussProduct/Technology standards

Benchmarking Best Practices

Lobbying

Codes of Ethics

Data collection and dissemination if properly managed (aggregated and de-identified)

Association Safeguards—Meetings

Prior Written Agenda Distributed and Followed

Avoid off-agenda discussion topics

Maintain accurate minutes

Seek legal guidance when needed

Respect concerns of participants who fear topics are off-limits

Avoid discussion of sensitive topics at social gatherings or in side discussions before, after or during meetings

Keep accurate, factual minutes

If Policy disregarded leave meeting and note your departure memorably

Association Safeguards—Issue Planning

Joint Lobbying and Advocacy

Historical (not future) Price Data Reporting

Statistical Programs

Development of Standards

Certification Programs

Design and Management of Member Entry

Antitrust-IP Intersection

Past Hostility

Current “Harmonization”/ “Complemetarity”

Seeking proper balance of competition and patent law and policy

Intersection? Or Collision Course?Licensing

Refusals to Deal

Boycotts

Single Firm Conduct

Remedies

MERGERS ACQUISITIONS & JOINT VENTURES

Increasing enforcement activity emerging from economic recovery

HSR Notified transactions increased by 25% in 2014

Challenges occur for mergers reducing competitors from 4-3, 3-2 or 2-1 and between competitors with large market shares

Gun jumping

Marked by large strategic transactions

Transactions reported with values over $1B increased 58%

Agency standards for assessment continue to evolve

Challenging consummated transactions

Refined econometric analysis

Primacy of market definition and potential entry

Remedies

Divestiture

Structural modification

Agencies showing increased willingness to litigate

HIGH PROFILE AGENCY MERGER MATTERS

DOJTicketMaster/Live NationComcast/NBC UniversalGoogle/ITA SoftwareUnited Airlines/ContinentalGE/AlstomAT&T/DirecTVChicken of Sea/Bumblebee TunaElectrolux/GEWhirlpool/MaytagH&R Block/TaxAct

FTCNielson/ArbitronHertz/Dollar-ThriftyOffice Depot/OfficeMaxMedtronic/CovidienKinder Morgan/El Paso EnergyReynolds/LorillardSysco/US FoodsStaples/Office Depot

KEY TREND TAKEAWAYS

Government Enforcement

Class Action Litigation

International Exposure

Industry focus on healthcare/pharma/defense/national retail/manufacturers with high market share and ability to engage in exclusionary practices

Compliance Policy

Influence Prosecutorial Discretion

Provides Guidance

Build Sensitivity to Concerns

Improve Effectiveness

Recommend adoption

Next Steps/ Provision for Annual Review

Response to Government Inquiries

If anyone approaches you asking questions about the affairs of the Association notify the President immediately

Respectfully express wish to cooperate but decline interview until review of situation

If agents of state or federal law enforcement present a search warrant, call President and counsel immediately

You have the right to consult with your counsel or association antitrust counsel before submitting to any interview

THANK YOU (and let’s be careful out there)

Glenn E. Davis

HeplerBroom LLC

One Metropolitan Sq.-2700

211 N. Broadway

St. Louis, MO 63102

314.241.6160glenn.davis@heplerbroom.com