Antitrust Compliance Policy and Guidelines
Adopted by the ICOA Board on May 12, 2009 – amended May 15, 2017
This document contains ICOA’s “Antitrust Policy,” and “Antitrust Guidelines,” which together represent ICOA’s antitrust and competition compliance program. The document is intended to educate ICOA members about the United States and European Union antitrust laws which are applicable to trade association activities, and to serve as a basic guide to assist ICOA and its members in conducting ICOA meetings and activities in conformity with these laws. In recent years, both the European and U.S. antitrust authorities have made clear that their laws often have extraterritorial application – a U.S. citizen or European authority may hail a foreign citizen or company before the U.S. courts or European tribunals even as to transactions that take place entirely outside the U.S. or Europe.
It is the policy of ICOA to comply strictly with all laws which relate to the conduct of its activities, including the antitrust laws and trade regulation rules of the United States and European Union. All ICOA members, officers, and staff should familiarize themselves with the ICOA “Antitrust Guidelines,” and should agree to conform all ICOA sponsored meetings and activities in strict accordance with the Guidelines. The Guidelines shall be updated and revised as appropriate by the ICOA Board in consultation with counsel. The Guidelines are intended to provide basic guidance on the antitrust laws which may be applicable to ICOA activities. Counsel should be consulted in all cases involving specific situations, interpretations or advice. ICOA staff members or counsel generally attend all meetings, and counsel usually attend meetings in which issues with antitrust implications are expected to be discussed.
Overview of the U.S. Antitrust Laws
The U.S. antitrust laws are intended to foster and protect competition. As such, the laws prohibit particular anti-competitive activities, and more generally those which are deemed to unreasonably restrain trade. Agreements among competitors are inherently suspect under the antitrust laws. Therefore, while the purpose of ICOA is to promote the exchange of ideas and developments in the castor oil industry and thereby foster competition among industry participants, group activities of competitors – such as those conducted by a trade association – are inherently suspect under the antitrust laws. For this reason, ICOA has developed these Antitrust Guidelines to provide a general overview of antitrust laws and specific guidelines to assist ICOA in conducting its activities in conformity with antitrust laws.
The principal statutes which are applicable to trade associations are the Sherman Act, Clayton Act and the Federal Trade Commission Act.
Section 1 of the Sherman Act prohibits “contracts, combinations or conspiracies in restraint of trade or commerce.” Taken together, the contract, combination or conspiracy requirement has been found to exist where there is some form of agreement between two or more parties. Such agreements may be explicit, or implicit, implied by the conduct of the parties.
Certain activities are deemed unlawful without a detailed examination of their context or effects on competition and constitute “per se” or automatic violations of the Sherman Act. These usually involve agreements among competitors, such as to agree on prices, divide markets or boycott.
In many cases, however, the prohibitions of the Sherman Act extend only to transactions which are found to be unreasonable restrictions on competition. Hence, courts examine the “reasonableness” of the restraint involved in light of all the relevant circumstances. In applying this “Rule of Reason” to alleged noncompetitive business activities, the courts conduct an extensive economic analysis of the alleged restraint on trade, the business context in which it arose, its purpose and probable anti-competitive effects, and the business or economic justification for the restraint.
Section 2 of the Sherman Act bans ‘wilful’ monopolies, i.e. those not arising simply from healthy competition.
Federal Trade Commission Act
Section 5 of the FTC Act prohibits “unfair methods of competition” and “unfair or deceptive acts or practices.” Furthermore, Section 4 of the FTC Act empowers the FTC to take action against “incipient” unfair practices; that is, conduct which does not yet amount to – but is likely to lead to – a violation of the other antitrust statutes.
The Clayton Act regulates a number of activities, including:
- price discrimination that substantially lessens competition or threatens to create a monopoly
- exclusive dealing agreements
- tying agreements, tying the purchase of one product to another
- mergers that substantially lessen competition
Enforcement and Penalties
The federal government, the states, and private parties may bring suit for violations of the Sherman Act. Enforcement of the FTC Act is vested exclusively in the FTC. Violations of the Sherman Act may result in both criminal and civil penalties. In addition, private plaintiffs may recover three times the amount of damages suffered, plus the costs of bringing suit, including attorneys’ fees.
Not only companies, but their officers and directors have been found personally liable – criminally and civilly — for antitrust violations.
The U.S. antitrust laws are more concerned with “horizontal” restraints on trade – agreements between competitors – than “vertical” restraints – restrictions imposed on buyers down the supply chain. Horizontal agreements are generally per se illegal, while many vertical restraints are now judged by the Rule of Reason.
Note that both the U.S. and EU competition laws have been interpreted to have extraterritorial effect. That is, conduct by companies outside those areas, but which have adverse competitive effects within the U.S. or EU, may be the subject of enforcement under either U.S. or EU laws, as applicable.
European Union Competition Regulation
Article 101 – Treaty for the Functioning of the European Union (TFOEU)
If there is an appreciable effect on competition among the EU member states (similar to the U.S. laws, which require proof of an impact on interstate commerce … a very low threshold), the law prohibits agreements between two or more independent market operators which restrict competition. This provision covers both horizontal agreements (between actual or potential competitors operating at the same level of the supply chain) and vertical agreements (between firms operating at different levels, i.e. agreement between a manufacturer and its distributor). Only limited exceptions are provided. The most flagrant example of illegal conduct infringing Article 101 is the creation of a cartel between competitors, which may involve price-fixing and/or market sharing. Similar to the U.S. Sherman Act Section 1.
Article 102 – TFOEU
Similar to U.S. Sherman Act Section 2. Prohibits firms that hold a dominant position in a given market to abuse that position, for example by charging unfair prices, by limiting production, or by refusing to innovate to the prejudice of consumers. Similar to U.S. Sherman Act Section 2.
In addition to EU competition laws, most of the member states have their own national laws regulating competition. National Competition Authorities have investigative powers and national courts have jurisdiction to hear complaints.
Enforcement and penalties: recent major policy changes in European Union laws
- Private Actions and Discovery
Effective December 31, 2016, European Union member countries were required, to adopt new laws in each of their countries, greatly expanding antitrust and trade enforcement. Most significantly, the EU countries now have laws providing for private enforcement of the laws. That means a customer – even an indirect purchaser – now has standing to use the courts to sue for anticompetitive conduct. Member countries were required to provide for discovery (procedures to require defendants to provide records) to complainants; procedures were prescribed for court and administrative complaints; damages, and legal fees and cost reimbursement.
As of early 2017, most member nations had complied, and adopted the required laws. Nations like the United Kingdom (see 1998 Competition Act) had long histories of encouraging plaintiffs to file such private lawsuits; others like France, were hesitant in adopting compliant laws.
- Collective Actions
The U.K. had long allowed collective, actions, which in the U.S. are called “class actions.” In these lawsuits, hundreds, or thousands of people may join in a single lawsuit arising from a common violation, and sue the alleged wrongdoer for huge damages. In 2015, the EU also adopted a recommendation for the adoption of collective redress laws in member states; this area is under study and may result in new laws in July 2017.
In summary, the EU laws, though more recent vintage than the older U.S. laws, are in many respects coming to resemble the U.S. law. In the EU, traditional administrative and governmental enforcement is now giving way to encourage private consumers to bring lawsuits, including class actions. Discovery of evidence is expanding. If the history in the U.S. is any lesson, the EU will likely see many private actions filed, for alleged competition violations.
Note that within the EU, as in the U.S., there are two forms of private actions. A “follow up” action is one that is filed by a private person, following up on a government investigation and finding, and using the government / administrative action as the basis for a private lawsuit seeking money damages for the private party. A “stand alone” action is one not based on a prior government action.
General Antitrust Guidelines
This section describes very generally some types of activities and practices which courts have found to constitute competition violations. ICOA officers, staff and members must take extreme care to avoid even the appearance of engaging in these types of activities, as well as any others which could be construed as having an anti-competitive intent or purpose.
Per se violations have traditionally included agreements among competitors that have the purpose and effect of “fixing prices,” “allocating territories,” or “boycotting third parties.” Under the antitrust laws, “price fixing” includes much more than an agreement to set prices at a particular level, within a specific range, or in accordance with a particular formula. It also potentially includes any agreement which tends to raise, fix, stabilize or otherwise affect price. Thus, even if the parties permit the price to vary somewhat under the agreement, the agreement is illegal if it has the effect of “stabilizing” the price among those participating in the conspiracy. Similarly, price fixing includes agreements to control other factors that directly or indirectly affect price, such as establishing production levels, setting uniform discounts, credit or warranty terms, or agreeing on matters relating to costs, especially when those costs account for a substantial percentage of the final price.
Territorial or market allocation involves an agreement among competitors operating at the same level of the market structure – such as manufacturers, distributors, etc. – to divide the market in such a way as to allow each party to the agreement to serve its share of the market without competition from the others. Prohibited allocations could include those made on the basis of geographical boundaries or particular types of customers.
No discussions or agreements shall take place concerning allocation or division of wholesale or retail Castor markets or geographical or other restrictions on representatives, distributors or other customers of ICOA members’ products.
Group boycotts or “refusals to deal” are considered per se violations in certain instances. Agreements or collective action to refuse to deal with certain suppliers, customers, or other competitors, or to undertake actions that tend to exclude certain participants from the marketplace or deny them access to a significant competitive benefit available to others in the market are generally prohibited. In the U.S. at least, before the per se rule is applied, however, several factors are considered, such as whether the activity was undertaken for an anti-competitive purpose, whether the group possesses market power, and whether it holds exclusive or unique access to a business element necessary for effective competition.
In the trade association context, group boycott issues may arise in relation to membership and/or exhibition restrictions, or in disciplinary or expulsion action against members. Because these situations must be analyzed closely in accordance with strictly defined legal guidelines, counsel should be notified prior to ICOA’s consideration of any of these actions.
ICOA members shall not engage in any discussion or agreement concerning particular representatives, distributors, other customers, or suppliers involving group decisions to deny, limit or terminate business relations between ICOA members and such firm(s). Also, counsel shall be notified prior to any discussion by ICOA concerning restricting or denying membership or exhibition space to any nonmember firm which competes in the industry.
In addition to the issues described above, other antitrust problems may arise where trade association activities are undertaken which may have anti-competitive effects on non-members. Particular guidelines must be followed before undertaking any association project such as a manufacturing or other commercial standard development program, an industry survey or other statistical program, or petitioning industry or government organizations on matters which may have a competitive impact on non-members. Accordingly, counsel must be contacted before discussing or planning these programs.