Distribution, Competition, and Antitrust / IP Law

The “Top Fives” Concerning Antitrust Compliance Programs

Oregon Sentencing Guidelines

Sentencing Guidelines (Photo credit: born1945)

There are a number of lengthy articles about antitrust compliance programs. This quick post will give you short answers to three questions: (i) why should you have a compliance program? (ii) what features should a program have? and (iii) what red flags should you look for when auditing or reviewing compliance?

Top Five Reasons to Have a Compliance Program

  1. It’s the right thing to do, isn’t it?  Integrity is important to virtually all businesses.
  2. It may help avoid a substantial problem and subsequent expensive litigation.
  3. In the criminal price-fixing or bid-rigging context, under the United States Sentencing Guidelines (2011), a corporation’s “culpability score” (used to calculate a criminal fine) can be reduced if it had in place an effective compliance and ethics program. To qualify, among other things, those with operational responsibility for the program should have direct reporting obligations to the “governing authority” (i.e., a corporate board) or an appropriate subgroup.  (Note, though, that when the Justice Department uses non-prosecution or deferred prosecution agreements in criminal cases, and in other civil settlements, it may not consider effective compliance programs.  In fact, the DOJ takes the public position that if a company is a criminal antitrust defendant or potential defendant, its compliance program must have failed and the company deserves no credit for it. Anecdotal evidence suggests that in some cases, though, the DOJ gives private consideration to companies which are essentially victimized by rogue employees and which have compliance programs.)
  4. Having a compliance program is a good excuse to rationalize your pricing and distribution system.
  5. Some governmental customers require programs as a condition of doing business with them.

Top Five Features Your Program Should Have

  1. Short, plain language without legalese.
  2. A structure that ensures the program will trigger the culpability score reduction contemplated by the Sentencing Guidelines. Hopefully you’ll never need that benefit, but why not set up the right structure at the outset?
  3. An approach tailored to departments or job functions. Sales personnel should be instructed about pricing, price discrimination, horizontal agreements, and the like. More senior executives can be provided some of the same information, but they might also be given information on mergers, acquisitions, joint ventures, and interlocking directorates.
  4. Oral presentations (at least annually) and employee certifications that they have received the materials and listened to the training.
  5. Privileged status.  Recipients should be instructed to keep the advice delivered within the organization and confidential. You don’t want employees to be cross-examined about the fine points of the advice during deposition or at trial.  Nor do you want to risk a broader subject matter waiver of the attorney-client privilege.

Top Five Red Flags to Look For in Any Compliance Review or Audit

  1. Trade association activity. “Look to see whether the positions of attendees at trade association meetings match the ostensible purpose of the meeting. Look for a pattern of meetings outside the United States. Look at whether the association is gathering detailed industry data, especially specific transaction data or forward-looking pricing and output data. Look to see whether meetings are attended by counsel and whether there is an agenda for the meetings and a record of what was discussed.”
  2. Sales transactions between your company and its competitors, particularly around the end of the year. “While there are many legitimate reasons for competitors to buy from one another, such transactions can be used to ‘true up’ a market allocation scheme.”
  3. Data on market shares. “Look at your company’s market shares to see if they are more stable than you would expect in a competitive market. Market shares that are stable over a long period of time are a strong indicator of collusion.” My gloss: such stability is a possible indicator of collusion.
  4. Executives receiving calls at home or from callers giving fictitious names or refusing to identify themselves. “When conducting audits, therefore, talk not only to the executives, but to their assistants.”
  5. Sudden, unexplained price increases and copies of competitor price announcements in your company’s files. “If you find any, look at the fax footprints or the cover e-mail to see where they came from.”  My gloss: of course, merely having a copy of a competitor’s public price announcement is not itself evidence of collusion.  Still, it may be worth asking about internally.

( The above five factors are from a speech by former Deputy Assistant Attorney General Kolasky on antitrust compliance programs.)

There you go: antitrust compliance programs in a nutshell.

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About Howard Ullman

Antitrust, competition, and IP law enthusiast.

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