APPLICATION OF ANTITRUST LAWS TO ASSOCIATION ACTIVITIES
Trade associations, such as the Association for
Retail Environments (“A.R.E.”), are subject to strict scrutiny under both
federal and state antitrust laws. Since competitors in a particular industry
join a trade association to pursue a common business purpose, trade
associations are especially vulnerable to antitrust attack under federal and
state laws. Trade associations and trade association members should exercise a
great deal of care when carrying on certain activities so as to avoid any
violation of the federal and state antitrust laws.
The consequences for violating the antitrust laws can
be severe. A conviction can carry stiff fines for the association and its
members, jail sentences for individuals who participated in the violation, and
a court order dissolving the association or seriously curtailing its
II. THE SHERMAN ACT AND THE FEDERAL TRADE COMMISSION ACT
With regard to trade association activities, the most important antitrust
statutes are Section 1 of the Sherman Ac and Section 5 of the Federal Trade
Commission Act. Section 1 of the Sherman Act prohibits “contracts,
combinations, or conspiracies . . . in restraint of trade.” By their very
nature, trade associations involve a “combination” of competitors so they are
especially prone to antitrust attack. Under the Sherman Act, any understanding
or agreement affecting the price of a product or bid on a construction job is
prohibited, regardless of the purpose of the understanding. Even if the
agreement will benefit consumers, it is prohibited.
Of great importance to A.R.E. members is the fact
that the Sherman Act is a criminal conspiracy statute. Consequently, an
executive who attends a meeting at which competitors engage in illegal
discussions which relate to prices or bids may be held criminally responsible,
even if he says nothing at the meeting. The executive’s attendance at the
meeting may be sufficient to imply acquiescence in the discussion, making him
liable to as great a penalty as those who actively participated in the
price-fixing or bid-rigging agreement.
Section 5 of the Federal Trade Commission Act forbids
“unfair methods of competition in or affecting commerce and unfair or deceptive
acts or practices in or affecting commerce.” It is distinct from Section 1 of
the Sherman Act in that it does not require a “combination” in order to reach
anti–competitive acts committed by individual companies. On the other hand, it
will, like the Sherman Act, cover joint actions. The Federal Trade Commission’s
authority in determining what constitutes an unfair method of competition or
unfair or deceptive act or practice is extremely broad. As a result, antitrust
actions can be brought to cover a wide range of charges. Given this wide range
of potential violations charges, as well as the heavy penalties which can be
invoked under the antitrust laws, A.R.E. has established an antitrust
compliance program. Under this program, every effort will be made to stop any
potential antitrust violation before it begins.
III. PENALTIES FOR VIOLATION OF THE ANTITRUST LAWS
The federal antitrust laws may be enforced against associations, association
members and the association staff, both by government officials and by private
parties through treble damage actions. In each case, the potential penalties
are quite severe. Pursuant to a new federal statute, the maximum penalty for an
individual convicted of a violation of the Sherman Act is a fine of $350,000,
twice the pecuniary loss of the victims, or twice the pecuniary gain of the
wrongdoer, whichever is greater. In addition, an individual may be imprisoned
for up to three years. However, in no case will an individual convicted of a
criminal Sherman Act Violation be sentenced to less than 90 days of actual jail
time. A corporation convicted of such a criminal offense may be fined as much
as $10 million, twice the pecuniary loss of the victims, or twice the pecuniary
gain of the wrongdoer. [See Attachment]
A violation of the Federal Trade Commission Act can
result in the issuance of a cease and desist order, which places extensive
governmental restraints on the activities of an individual company, its
officers and directors, an association and its members. Failure to obey such an
order can result in penalties of as much as $10,000 per day. In addition to
governmental prosecution for a criminal or civil antitrust violation, a company
or an association can face a private treble damages action brought by
competitors or consumers. A finding of a violation of an antitrust law in a
private action will result in payment by the defendant of three times the
damages suffered by the plaintiff plus attorneys fees. For example, if the
antitrust violation at issue is a price–fixing conspiracy, the measure of
damages to one of the conspirators’ customers is the difference between the
prices actually paid and the prices that would have been paid absent the
conspiracy. See, e.g., Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263,
297 (2d Cir. 1979), cert. denied 444 U.S. 914 (1983). This damage amount would
then be tripled, “reasonable” attoney fees would be added, and the total would
constitute the wrongdoer’s civil liability.
In June of 2004 the Standards Development
Organization Advancement Act was signed into law. This legislation
significantly increases the penalties for violation of the federal antitrust
laws. Individuals convicted of a criminal antitrust violation will be guilty of
a felony and will be subject to a jail sentence of up to ten years. Fines for
individuals were increased to a maximum of $1 million per offense and for
corporations to a maximum of $100 million per offense.
IV. ANTITRUST PROBLEM AREAS OF ASSOCIATION ACTIVITY
A. Areas of General Concern
As a practical matter, all trade associations such as A.R.E. should focus their
attention on five principal antitrust problem areas:
1. Price-Fixing and Bid-Rigging
Experience shows that trade association members are most likely to violate, and
the government is most likely to strictly enforce, the Sherman Act’s ban on
price–fixing or bid–rigging. Antitrust violations in the price–fixing or
bid–rigging areas can be inferred simply from similar price or bid behavior by
association members. An oral or a written agreement is not needed for a court
to conclude that the government has proved, by showing a course of conduct, the
defendants are guilty of price–fixing or bid–rigging. Neither the
reasonableness of the prices set or the amounts bid nor the potentially
beneficial purposes underlying the agreement will constitute a defense in the
event that price–fixing or bid–rigging is established.
2. Agreement to Allocate Customers or Divide
An agreement among members of an association to allocate customers or divide
geographical territories is, in and of itself, a per se violation. The
antitrust laws expressly prohibit any understanding or agreement between
competitors or members of an association involving division of territories or
allocation of customers. Even an informal agreement whereby one member agrees
to stay out of another’s territory will constitute a criminal violation of the
3. Membership Restrictions
Assuming that the members of an association derive an economic benefit from
membership, the denial of membership to an applicant may constitute a restraint
of trade because such a denial may limit the ability of the applicant to
compete. Therefore, membership criteria must be carefully established with a
view toward avoiding antitrust problems.
4. Standardization and Certification
An association that develops voluntary industry standards may face antitrust
problems if such a standard unreasonably favors some competitors and
discriminates against others. Similarly, association certification activities
which unreasonably further the interests of certain groups of members, to the
exclusion of others, may result in antitrust problems.
5. Industry Self-Regulation
Associations commonly establish codes of ethics for their members, including
procedures for enforcement of such codes. The association must guard against
any efforts to enforce such codes of ethics if such enforcement would result in
economic injury to certain members unless it can be shown that the practices
prohibited by the Code of Ethics are in fact unlawful.
B. Bid-Rigging—An Area of Special Concern for the
An antitrust problem area must be clearly understood by associations, such as
A.R.E., is that of bid–rigging. A bid–rigging scheme bears some of the traits
of both a price–fixing agreement and an agreement to divide customers, and, in
fact, could be considered a synthesis of those two violations. In U.S. v. W.F.
Brinkley & Son Construction Co. [1986–1 Trade Cas. (CCH) # 66,963] (a
highway construction case), the Fourth Circuit Court of Appeals upheld the
lower court’s jury instruction that “a conspiracy to allocate projects or rig
bids is automatically or per se unreasonable and illegal.” As a result, an
agreement between two or more persons that one will submit a higher or lower
bid than the other, or will submit no bid at all, will constitute a criminal
restraint of trade violating the Sherman Act. In making their case, those
alleging an unlawful bid–rigging conspiracy need not prove a formal, express
agreement with all terms set–forth as clearly understood by the conspiring
competitors. The antitrust injury caused by a bid–rigging scheme is the denial
of the purchaser’s property right to choose the lowest responsible bidder and
to allocate its funds to that bidder. See County of Orange v. Sullivan Highway
Products, Inc. and North Dakota Cement Co.,1989–2 Trade Cas. (CCH) # 68,815.
Those individuals found guilty of bid–rigging in a federal criminal case face a
mandatory jail sentence of at least 90 days. Recently, both the federal and
state governments have prosecuted a number of antitrust cases involving
bid–rigging. See U.S. v. MMR Corp. (LA) and James B. Rutland [1990–2 Trade Cas.
(CCH) # 64,136]; MMR Corp. involved a conspiracy to rig bids on an electrical
construction project. In affirming the bid–rigging conviction of one company
and its president, the Fifth Circuit Court of Appeals found that the fact that
the company did not submit a bid for the project and then received a lucrative
subcontract on the project provided convincing circumstantial evidence that the
company had been involved in a bid–rigging conspiracy. U.S. v. Dynalectric Co.
[1988–2 Trade Cas. (CCH) # 68,238]. 674 F.Supp. 240 (1987). Dynalectric
demonstrates the hardline approach that the government is taking in bid–rigging
cases. The court refused to allow those facing criminal charges for Sherman Act
violations to enter no contest pleas, in part because, in the court’s view, the
public interest would be better served by the deterrent effect of a trial or an
admission of guilt.
V. HOW TO AVOID
A.R.E. has adopted the following rules in order to ensure against unintentional
violations of the antitrust laws:
A. General Operating Procedures
1. A full description of the association’s intention
to comply fully with the antitrust laws is included in the written policies of
2. All members of the board of directors of the
association receive a copy of the association’s antitrust policy statement,
detailing what can and cannot be done at association meetings.
3.The association’s legal counsel updates members
concerning antitrust problems periodically and has formalized the association’s
antitrust compliance program.
4. The association’s legal counsel approves, in
advance, all new association programs or changes in existing programs that may
have potential antitrust implications. In this regard, special attention is
given to statistical reporting programs.
5. All association meetings are regularly scheduled,
and members are not permitted to hold “rump” meetings.
6. An agenda is prepared for each meeting of the
association, and the agenda is reviewed in advance by legal counsel, where
antitrust sensitive issues are involved.
7. The minutes of all board of directors’ meetings
are reviewed by legal counsel. The minutes reflect the association’s policy of
complying with the antitrust laws.
8. The minutes of all association meetings are
accurate, and the A.R.E. staff never submits minutes which have been doctored
or are incomplete.
9. No action by the association or its board of
directors which has the effect of rejecting a membership application becomes
final without approval by legal counsel.
10. The association has a formal record retention
11. No association staff member has authority to
communicate with officials of the Federal Trade Commission or the Antitrust
Division of the Department of Justice without prior approval of the
association’s legal counsel.
B. Membership Policy
A.R.E. does not:
1. Exclude certain competitors from membership in the association, if the
applicant meets bylaw requirements.
2. Restrict members from dealing with nonmembers.
3. Unreasonably limit access to information developed
by the association, unless such limitation is firmly grounded upon the need to
protect trade secrets.
C. Self-Regulation and Codes of Ethics
The association does not:
1. Adopt regulations or policies which have price–fixing implications, such as
restrictions on advertising of prices or bidding, or which unreasonably inhibit
the ability of any member or group of members to compete.
2. Require members to refrain from dealing with any
vendor, supplier, customer or other member.
D. Topics of Discussion Which Must Be Avoided at
1. Current or future prices or bids. (Great care must
be taken in discussing past prices or bids.)
2. What constitutes a “fair” profit level.
3. Possible increases or decreases in prices.
4. Standardization or stabilization of prices.
5. Pricing procedures.
7. Credit terms.
8. Control of sales.
9. Allocation of markets.
10. Refusal to deal with a corporation because of its
pricing or bidding practices.
11. Whether or not the pricing or bidding practices
of any industry member are unethical or constitute an unfair trade practice.