Copyright© 2010 WeComply, Inc. All rights reserved. 10/24/2015 Antitrust Law Basics

Copyright© 2010 WeComply, Inc. All rights reserved. 2 Introduction Fundamental objective of antitrust laws is to protect and promote free and fair competition in the marketplace for the benefit of consumers Antitrust laws prohibit conduct that reduces competition by unfair means U.S. antitrust laws are the most developed Criminal and civil penalties are among the most severe Enforcement efforts are vigorous You should consult legal counsel to ensure compliance with all global antitrust laws

Copyright© 2010 WeComply, Inc. All rights reserved. 3 Overview of U.S. Antitrust Law Three primary federal antitrust laws: Sherman Act Clayton Act Federal Trade Commission Act State and international antitrust laws Ignorance of the law is no defense Challenged conduct is judged by two standards: Some conduct is illegal per se — i.e., prohibited regardless of effect on competition Most conduct is subject to rule of reason — i.e., permitted if it enhances competition

Copyright© 2010 WeComply, Inc. All rights reserved. 4 Penalties for Antitrust Violations Violation of Sherman Act is a felony Many foreign jurisdictions have also criminalized antitrust violations Penalties: In U.S., individuals may be imprisoned for up to 10 years and fined up to $160 million per violation In U.S., companies may be fined $100 million or more In EU, companies may be fined up to 10% of worldwide turnover Private lawsuits can result in judgments for three times the amount of damages plus attorneys' fees

Copyright© 2010 WeComply, Inc. All rights reserved. Special Note…

Copyright© 2010 WeComply, Inc. All rights reserved. 6 Recognizing "Red Flags" It is important to learn how to recognize and deal with antitrust issues in the real world Antitrust issues typically arise in these contexts: Relationships with competitors Relationships with customers Mergers and acquisitions Monopolistic behavior Discrimination in pricing and promotions Exemptions from antitrust laws Special industries

Copyright© 2010 WeComply, Inc. All rights reserved. 7 Relationships with Competitors Section 1 of Sherman Act prohibits agreement between competitors that unreasonably restrains competition Each competitor must make its own decisions about price, output, customers and areas of activity An agreement among competitors may take any form — it does not have to be formal or written Unlawful conspiracy may be inferred from conduct Avoid conduct that could give rise to an inference of an agreement Avoid contacts that could be seen as invitation to collude

Copyright© 2010 WeComply, Inc. All rights reserved. 8 Relationships with Competitors (cont’d) Section 1 of Sherman Act prohibits agreement between competitors that unreasonably restrains competition Each competitor must make its own decisions about price, output, customers and areas of activity An agreement among competitors may take any form — it does not have to be formal or written Unlawful conspiracy may be inferred from conduct Avoid conduct that could give rise to an inference of an agreement Avoid contacts that could be seen as invitation to collude

Copyright© 2010 WeComply, Inc. All rights reserved. 9 Relationships with Competitors (cont’d) Red Flag #1 — Price-Fixing Agreement between competitors to set price is the most serious type of anti-competitive conduct Includes agreement to set discounts, freight charges or payment terms Includes bid-rigging Price-fixing agreements are "per se" illegal Never discuss prices, price levels, price trends or pricing policies with competitors Do not exchange past, present or future price or cost information with competitors

Copyright© 2010 WeComply, Inc. All rights reserved. 10 Relationships with Competitors (cont’d) Red Flag #2 — Allocating Markets or Customers Agreement to allocate customers, territories or business opportunities is always illegal Competitors cannot agree that one will not sell in certain areas or to certain customers Competitors cannot agree that one will not bid on a certain contract or not compete for customers Red Flag #3 — Boycotts Agreement not to do business with a supplier or customer, or to do business only with certain suppliers or customers, may be illegal boycott

Copyright© 2010 WeComply, Inc. All rights reserved. 11 Relationships with Competitors (cont’d) Red Flag #2 — Allocating Markets or Customers Agreement to allocate customers, territories or business opportunities is always illegal Competitors cannot agree that one will not sell in certain areas or to certain customers Competitors cannot agree that one will not bid on a certain contract or not compete for customers Red Flag #3 — Boycotts Agreement not to do business with a supplier or customer, or to do business only with certain suppliers or customers, may be illegal boycott

Copyright© 2010 WeComply, Inc. All rights reserved. 12 Relationships with Competitors (cont’d) Red Flag #4 — Other Improper Competitor Contacts Never discuss prices, terms, distribution, customers, territories or profit margins with competitors Applies to informal meetings/discussions, trade-association meetings, trade shows If these subjects are discussed in your presence — Ask those involved in the discussion to stop Announce that you don't want to be part of the discussion Request that minutes reflect your departure Report incident to the Legal Department as soon as possible

Copyright© 2010 WeComply, Inc. All rights reserved. 13 Relationships with Customers Antitrust laws prohibit certain agreements between companies at different levels of distribution chain Our commercial decisions must be unilateral — there can be no discussions or agreements with a customer, competitor or supplier We may decide which customers and suppliers we want to deal with as long as we make our decisions independently We may adopt a business strategy designed to protect our self-interest Legal Department should review business arrangements that raise any red flags

Copyright© 2010 WeComply, Inc. All rights reserved Pop Quiz! A pricing agreement between a supplier and a customer is always ("per se") illegal. A.True. B.False.

Copyright© 2010 WeComply, Inc. All rights reserved. 15 Relationships with Customers (cont’d) Red Flag #5 — Price-Related Restrictions Resale-price-maintenance agreements between supplier and customers set prices at which the customers will resell supplier's products or services Assessed under rule of reason Seller must provide a reasonable, pro-competitive justification for price restriction Red Flag #6 — Geographic or Customer Restrictions Legality of agreement between manufacturer and distributor that distributor may sell only in certain territories or to certain types of customers depends on facts and circumstances

Copyright© 2010 WeComply, Inc. All rights reserved. 16 Relationships with Customers (cont’d) Red Flag #5 — Price-Related Restrictions Resale price maintenance agreements between supplier and customers set prices at which the customers will resell supplier's products or services Assessed under rule of reason Seller must provide a reasonable, pro-competitive justification for price restriction Red Flag #6 — Geographic or Customer Restrictions Legality of agreement between manufacturer and distributor that distributor may sell only in certain territories or to certain types of customers depends on facts and circumstances

Copyright© 2010 WeComply, Inc. All rights reserved. 17 Relationships with Customers (cont’d) Red Flag #5 — Price-Related Restrictions Resale price maintenance agreements between supplier and customers set prices at which the customers will resell supplier's products or services Assessed under rule of reason Seller must provide a reasonable, pro-competitive justification for price restriction Red Flag #6 — Geographic or Customer Restrictions Legality of agreement between manufacturer and distributor that distributor may sell only in certain territories or to certain types of customers depends on facts and circumstances

Copyright© 2010 WeComply, Inc. All rights reserved. 18 Relationships with Customers (cont’d) Red Flag #7 — Exclusive Dealing Agreements that require customer to buy all or some of its requirements from one supplier raise antitrust concerns Red Flag #8 — Tying Agreements in which a supplier offers to sell a customer a desirable product only if customer agrees to buy less desirable product are unlawful under certain circumstances Legality depends on analysis of supplier's market power in desirable product

Copyright© 2010 WeComply, Inc. All rights reserved. 19 Relationships with Customers (cont’d) Red Flag #9 — Reciprocal Dealing Agreement to buy a supplier's products on the condition that supplier buys your products is reciprocal dealing Avoid appearance of an agreement that links your purchases from suppliers to their purchases from you Red Flag #10 — Dual Distribution Manufacturer that uses its own distribution channels and independent distributors must assure that independent distributors are treated fairly

Copyright© 2010 WeComply, Inc. All rights reserved. 20 Mergers and Acquisitions Clayton Act prohibits mergers or acquisitions that could substantially lessen competition or create a monopoly Antitrust issues may arise in acquisition, merger or joint venture involving stock or assets of a competitor, potential competitor, or substantial customer or supplier Red Flag #11 — Pre-Merger Reporting Parties must submit documents to government agencies to evaluate competitive effects of transaction Documents should be written with regard to antitrust significance of their contents

Copyright© 2010 WeComply, Inc. All rights reserved. 21 Mergers and Acquisitions (cont’d) Clayton Act prohibits mergers or acquisitions that could substantially lessen competition or create a monopoly Antitrust issues may arise in acquisition, merger or joint venture involving stock or assets of a competitor, potential competitor, or substantial customer or supplier Red Flag #11 — Pre-Merger Reporting Parties must submit documents to government agencies to evaluate competitive effects of transaction Documents should be written with regard to antitrust significance of their contents

Copyright© 2010 WeComply, Inc. All rights reserved Pop Quiz! Companies considering a merger are allowed to share information with each other so that they can accurately evaluate their prospective business opportunity. A.True. B.False.

Copyright© 2010 WeComply, Inc. All rights reserved. 23 Mergers and Acquisitions (cont’d) Red Flag #12 — Pre-Closing Information-Sharing Until the closing of a merger or acquisition, companies involved must remain separate Coordination of pricing, purchasing, etc., is only permitted once transaction is concluded Negotiations between competitors are especially tricky Parties must limit disclosure and exchange of non-public, competitively sensitive information Disclosures should be on "need-to-know" basis only and protected by written confidentiality agreement

Copyright© 2010 WeComply, Inc. All rights reserved. 24 Monopolistic Behavior Sherman Act prohibits monopolization: Unreasonable business behavior designed to achieve or maintain monopoly power Attempts and conspiracies to monopolize Applies where a company has power to control prices, drive competitors out or prevent them from entering market Usual indicator of monopoly power is market share over 60% Can occur in narrow geographic areas and small segments of broad market Requires deliberateness — conduct or behavior that shows monopolistic intent

Copyright© 2010 WeComply, Inc. All rights reserved. 25 In the news…

Copyright© 2010 WeComply, Inc. All rights reserved. 26 Monopolistic Behavior (cont’d) Red Flag #13 — Predatory Pricing Company sells its products below cost with intent to severely damage competitors Most problematic where company setting prices has significant market power in relevant product market Red Flag #14 — Refusals To Deal Refusal to deal with customers/suppliers by company with monopoly power violates Sherman Act if company had no legitimate business purpose Dominant firm that controls an essential facility may have duty to share facility with competitors on non-discriminatory basis

Copyright© 2010 WeComply, Inc. All rights reserved. 27 Price Discrimination Robinson-Patman Act prohibits a seller from discriminating between customers on price, terms or promotional services if it substantially lessens competition or creates a monopoly It is illegal to charge different prices for similar products to competing customers at the same time if price difference lessens competition Intent of the Act is to prevent large buyers from obtaining unfairly low prices or extra services to detriment of smaller buyers Seller can defend price differentials based on cost justification, changing market conditions or the need to meet competition

Copyright© 2010 WeComply, Inc. All rights reserved. 28 Price Discrimination (cont’d) Robinson-Patman Act prohibits a seller from discriminating between customers on price, terms or promotional services if it substantially lessens competition or creates a monopoly It is illegal to charge different prices for similar products to competing customers at the same time if price difference lessens competition Intent of the Act is to prevent large buyers from obtaining unfairly low prices or extra services to detriment of smaller buyers Seller can defend price differentials based on cost justification, changing market conditions or the need to meet competition

Copyright© 2010 WeComply, Inc. All rights reserved Pop Quiz! Which of the following is not a type of price discrimination addressed by U.S. antitrust laws? A.A supplier sells widgets to stores owned by people who are over 40 for $100 each but charges $200 to stores owned by people under 40. B.A supplier sells widgets to "big-box" chain stores at $100 each but charges $200 to small, independent stores. C.A supplier sells widgets to all its customers at $150 each but includes promotional materials free of charge for orders by its largest customers.

Copyright© 2010 WeComply, Inc. All rights reserved. 30 Price Discrimination (cont’d) Red Flag #15 — Meeting Competition "Meeting competition" defense permits seller to charge lower price to buyer if done in good faith to meet (but not beat) equally low price offered by seller's competitor Seller must make good-faith effort to verify lower price before giving price cut Seller should not call competitor directly to verify lower price Red Flag #16 — Promotional Services Company that offers promotional services or allowances must make offers available to all competing customers on proportionally equal terms

Copyright© 2010 WeComply, Inc. All rights reserved. 31 SPORTS AND ANTITRUST LAW Curtis Charles Flood (January 18, 1938 – January 20, 1997) was a Major League Baseball player who spent most of his career as a center fielder for the St. Louis Cardinals. A defensive standout, he led the National League inputouts four times and in fielding percentage twice, winning Gold Glove Awards in his last seven full seasons from 1963 to 1969.Major League Baseballcenter fielderSt. Louis CardinalsNational Leagueputoutsfielding percentageGold Glove Awards Flood became one of the pivotal figures in the sport's labor history when he refused to accept a trade following the 1969 season, ultimately appealing his case to the U.S. Supreme Court. Although his legal challenge was unsuccessful, it brought about additional solidarity among players as they fought against baseball's reserve clause and sought free agency.laborU.S. Supreme Courtreserve clausefree agency

Copyright© 2010 WeComply, Inc. All rights reserved. 32 Baseball and Antitrust Law: Flood v. Kuhn With the backing of the Players Association and with former U.S. Supreme Court Justice Arthur Goldberg arguing on his behalf, Flood pursued the case known as Flood v. Kuhn (Commissioner Bowie Kuhn) from January 1970 to June 1972 at district, circuit, and Supreme Court levels. Although the Supreme Court ultimately ruled against Flood, upholding baseball’s exemption from antitrust statutes, the case set the stage for the 1975 Messersmith-McNally rulings and the advent of free agency.

Copyright© 2010 WeComply, Inc. All rights reserved. 33 Curt Flood Remembered The financial and emotional costs to Flood as a result of his unprecedented challenge of the reserve clause were enormous. Flood’s major league career (his 1970 salary would have been $100,000) effectively ended with his legal action. At the memorial service for Curt Flood, who died of throat cancer in 1997 at the age of 59, dozens of former ballplayers gathered at the First African Methodist Episcopal Church in Los Angeles to pay tribute to a man whose sacrifice made him not merely a hero, but a martyr. One mourner compared Flood’s social legacy to that of Rosa Parks.

Copyright© 2010 WeComply, Inc. All rights reserved. 10/24/2015 Explain the following: 4. Who was Curt Flood? 5. The Curt Flood Case 6. What was the ruling in the case? 7. What was the impact on Major League Baseball?

Copyright© 2010 WeComply, Inc. All rights reserved. 10/24/2015 Thank you for participating! This course and the related materials were developed by WeComply, Inc. and the Association of Corporate Counsel.