| I.
APPLICATION OF ANTITRUST LAWS TO ASSOCIATION ACTIVITIES
Trade
associations, such as the National Association of Store
Fixture Manufacturers (“NASFM”), 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 activities.
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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 Act 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 NASFM 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, the National Association
of Store Fixture Manufacturers has established an antitrust
compliance program. Under this program, every effort will
be made to stop any potential antitrust violation before
it begins.
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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.
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IV. ANTITRUST PROBLEM AREAS OF ASSOCIATION
ACTIVITY
A.
Areas of General Concern
As a practical matter, all trade associations such as NASFM
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 Territories
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
antitrust laws.
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 Construction
Industry
An antitrust problem area must be clearly understood by
associations, such as NASFM, 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.
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V. HOW TO AVOID ANTITRUST PROBLEMS
The National Association of Store Fixture Manufacturers
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 the association.
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 NASFM 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 program.
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
NASFM
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 Association
Meetings
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.
6.
Bid-rigging.
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.
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antitrust compliance program
