1. MODULE C - LEGAL SUBMODULES C1. Conflict Of Interest/Code Of Ethics C2. Antitrust C3. Torts C4. Intellectual Property C5. Speaking For The Society

2. ASME C&S Training Module C2 1 REVISIONS CHANGESLIDEDATE Training module revised in its entirety. 7/7/08

3. C2. Antitrust

4. ASME C&S Training Module C2 3 OBJECTIVES This submodule will –Explain how antitrust laws affect ASME –Provide guidelines for complying with antitrust law: Codes and standards development Conformity assessment

5. ASME C&S Training Module C2 4 AGENDA I.The Antitrust Laws II.Standards Development Organization Advancement Act of 2004 III.ASME and Antitrust IV.A Brief History of ASME and Antitrust Cases V.Related Antitrust Cases VI.General Guidelines VII.Basic Do’s and Don'ts

6. ASME C&S Training Module C2 5 I.THE ANTITRUST LAWS

7. ASME C&S Training Module C2 6 PURPOSE OF ANTITRUST LAW Statutory and case law which is designed to protect trade and commerce from unlawful restraints, monopolies and price-fixing.

8. ASME C&S Training Module C2 7 FEDERAL ANTITRUST STATUTES Sherman Act (1890) Clayton Act (1914) Federal Trade Commission Act (1914) Robinson-Patman Act (1936)

9. ASME C&S Training Module C2 8 SHERMAN ACT (1890) First Major Federal Antitrust Act Two Main Sections –§1: Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal [Violators] … shall be guilty of a felony –§2: Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be guilty of a felony

10. ASME C&S Training Module C2 9 SHERMAN ACT (cont’d) §1:Generally focuses on concerted action between two or more individuals or entities. Note that the language of the Sherman Act is very broad. This essentially delegated the responsibility for actually defining violations of the Sherman Act to the Courts. §2: Focuses upon the establishment or maintenance of a monopoly. This could be accomplished by a single individual or organization.

11. ASME C&S Training Module C2 10 SHERMAN ACT (cont’d) Section 1 is written so broadly that it could be interpreted to forbid all joint action that “affects” interstate or foreign commerce – even if the results actually increase competition. Courts have not interpreted Section 1 so broadly (We will discuss the tests used by the Courts, infra). The plaintiff need not establish a formal agreement. Agreements have been inferred by the Courts from circumstantial evidence, such as the existence of an unexplained meeting between competitors or changes in an industry that do not appear to result from natural market forces.

12. ASME C&S Training Module C2 11 SHERMAN ACT (cont’d) Penalties –Violation is a crime – a “felony” punishable by a fine up to $100,000,000 for a corporation. –Individuals can be imprisoned for up to 10 years and fined up to $1,000,000. –The Justice Department may also punish a violator through civil injunctive relief. Such as requiring the sale of part of a business, or prohibiting certain conduct. –Private parties can also bring lawsuits alleging that they have been injured by the defendants’ anti-competitive acts. If successful, an antitrust plaintiff can be awarded treble damages.

13. ASME C&S Training Module C2 12 CLAYTON ACT (1914) Extends and elaborates on the Sherman Act. Prohibits direct or indirect price discrimination between purchasers in sales contracts for goods of like grade and quality.* Prohibits sales agreements made on the condition that one party not purchase goods from a competitor. * The Robinson-Patman Act amended this section of the Clayton Act. We discuss this provision as amended.

14. ASME C&S Training Module C2 13 CLAYTON ACT (1914) (cont’d) Prohibits corporate mergers if the merger lessens competition or creates a monopoly. Prohibits interlocking directorates between large companies who could agree to violate antitrust laws.

15. ASME C&S Training Module C2 14 FEDERAL TRADE COMMISSION ACT Created by the Federal Trade Commission Provides “[u]nfair methods of competition in or affecting commerce, and unfair and deceptive acts or practices in or affecting commerce are unlawful.” No criminal penalties. Limits FTC remedies to obtaining equitable relief.

16. ASME C&S Training Module C2 15 TESTS FOR ANTI-COMPETITIVE CONDUCT The rule of reason is the general rule of analysis used by the Courts to determine whether an antitrust violation has occurred. Under a rule of reason analysis the plaintiff has the burden of establishing that particular conduct restrains trade. A Court will then weigh all of the relevant circumstances surrounding the conduct including a balancing of the positive and negative effects on competition.

17. ASME C&S Training Module C2 16 TESTS FOR ANTI-COMPETITIVE CONDUCT (cont’d) However, certain business activities such as price- fixing between competitors, agreements to divide territory or customers, agreements to limit production or to boycott a Competitor’s products have been found to be “per se” violations of the antitrust laws. This means that a Court in reviewing such conduct will presume it to be illegal without an elaborate inquiry into the precise harm caused or any business justification for such conduct.

18. ASME C&S Training Module C2 17 II. STANDARDS DEVELOPMENT ORGANIZATION ADVANCEMENT ACT OF 2004

19. ASME C&S Training Module C2 18 A.Definitions The Standards Development Organization Advancement Act (SDOAA) defines “standards development activity” as “any action taken by a standards development organization for the purpose of developing, promulgating, revising, amending, reissuing, interpreting, or otherwise maintaining a voluntary consensus standard, or using such standard in conformity assessment activities, including actions related to the intellectual property policies of the standards development organization.” Standards Development Organization Advancement Act of 2004

20. ASME C&S Training Module C2 19 The following activity is excluded from protection under the act: –Exchanging information among competitors relating to cost, sales, profitability, prices, marketing, or distribution of any product, process, or service that is not reasonably required for the purpose of developing or promulgating a voluntary consensus standard, or using such standard in conformity assessment activities. Standards Development Organization Advancement Act of 2004 (cont’d)

21. ASME C&S Training Module C2 20 Standards Development Organization Advancement Act of 2004 (cont’d) –Entering into any agreement or engaging in any other conduct that would allocate a market with a competitor. –Entering into any agreement or conspiracy that would set or restrain prices of any goods or services.

22. ASME C&S Training Module C2 21 Standards Development Organization Advancement Act of 2004 (cont’d) B.Rule of Reason –Provides that the “rule of reason” analysis not the “per se” test will be used to analyze the conduct of standards development organizations.

23. ASME C&S Training Module C2 22 Standards Development Organization Advancement Act of 2004 (cont’d) –Rule of reason test is defined: “conduct shall be judged on the basis of its reasonableness, taking into account all relevant factors affecting competition, including but not limited to, effects on competition in properly defined, relevant research, development, product, process, and service markets. For the purpose of determining a properly defined, relevant market, worldwide capacity shall be considered to the extent that it may be appropriate circumstances.”

24. ASME C&S Training Module C2 23 Standards Development Organization Advancement Act of 2004 (cont’d) C.Treble Damages –The SDOAA limits liability to actual damages of eligible standards developers (as opposed to treble damages) in federal or state civil antitrust actions.

25. ASME C&S Training Module C2 24 Standards Development Organization Advancement Act of 2004 (cont’d) D.Attorney’s Fees –The act provides for the award of costs of suits, including attorneys’ fees, to the “substantially prevailing party”. With respect to a defendant the Court must find that the claim or claimant’s conduct was frivolous, unreasonable, without foundation or in bad faith. –This provision applies to standards development organizations and their full time employees. –The following entities or individuals are not covered by fee shifting: Any person other than an SDO who participates in a standards development activity with respect to which a violation of any of the antitrust laws is found. Any person who is not a full-time employee of the SDO.

26. ASME C&S Training Module C2 25 Standards Development Organization Advancement Act of 2004 (cont’d) –Any person who is an employee or agent of a person who is engaged in a line of commerce that is likely to benefit directly from the operation of the standards development activity with respect to which such violation is found.

27. ASME C&S Training Module C2 26 III. ASME AND ANTITRUST

28. ASME C&S Training Module C2 27 A.Introduction Private standards organizations like ASME and ASTM have been recognized as providing a benefit to society. Imagine, for example, trying to build a product without standardization for nuts and bolts. Standards development involves cooperation and agreements by competing companies. This may trigger an antitrust analysis. ASME AND ANTITRUST

29. ASME C&S Training Module C2 28 B.ASME Safeguards The standards development process is open to all competitors in the industry affected. Standards committees are balanced, which means there are members of industry, government, regulatory bodies, academia and other third parties on standards setting committees. Proposed new standards and modifications of current standards are published. ASME AND ANTITRUST

30. ASME C&S Training Module C2 29 ASME AND ANTITRUST cont’d. Negative comments about proposed new standards or modifications of current standards are carefully considered. Complaints about existing standards have established procedures for review. Complaints are reviewed by balanced committees. There is a standard certification process open to any entity that wants to seek certification. Individual volunteer and staff members have a fundamental responsibility to insure that their own participation is consistent with antitrust laws.

31. ASME C&S Training Module C2 30 IV. A BRIEF HISTORY OF ASME AND ANTITRUST CASES

32. ASME C&S Training Module C2 31 U.S. v. ASME (1972) Complaint –ASME accreditation available only to companies with plants in the U.S. and Canada –Foreign companies effectively prohibited from selling products in the U.S. and Canada Outcome –ASME B&PV accreditation extended to manufacturers worldwide

33. ASME C&S Training Module C2 32 (cont’d) American Society of Mechanical Engineers, Inc. v. Hydrolevel Corporation, 456 U.S. 556 (1982) Facts –Hydrolevel was a manufacturer of low-water fuel cut-offs for boilers. –McDonnell and Miller, Inc. (“M&M”) manufactured a competing fuel cut- off valve. The pertinent difference for purposes of the lawsuit was that the Hydrolevel fuel cut-off included a time delay. –An M&M vice president was vice chairman of the BPV subcommittee that drafted, interpreted and revised the pertinent Code section. –In early 1971 Hydrolevel secured an important customer of M&M, Brooklyn Union Gas. –Hydrolevel alleged that the M&M vice president and other M&M officers met with the chairman of the BPV subcommittee and “planned a course of action”. The “plan” was to seek an interpretation of the Code asking whether a fuel cutoff with a time delay would satisfy code requirements. The chairman of the committee then authored an interpretation (under then applicable procedures the interpretation did not have to be approved by the committee) that “condemned fuel cut- offs that incorporated a time delay”.

34. ASME C&S Training Module C2 33 –Hydrolevel argued that M&M salesmen used the interpretation to discourage customers from buying Hydrolevel’s product. –At issue in the Hydrolevel case was whether ASME could be held liable for the acts of volunteers who acted with “apparent authority”. –Apparent authority is a legal doctrine which provides that if a principal holds out an agent as having certain authority to third persons, the principal will be responsible for the agent’s acts-- whether or not the agent had actual authority to perform the act at issue. –The Supreme Court held that ASME could be held liable under the anti-trust laws for the acts of volunteers committed within their apparent authority. American Society of Mechanical Engineers, Inc. v. Hydrolevel Corporation, 456 U.S. 556 (1982)

35. ASME C&S Training Module C2 34 V. OTHER ANTITRUST CASES

36. ASME C&S Training Module C2 35 INDIAN HEAD v. ALLIED TUBE & CONDUIT CORP Complaint –Metal conduit manufacturers packed 1980 NFPA conference and voted down proposal to revise Fire Code to allow plastic conduit for building wiring –Proposal recommended by NFPA panel of experts

37. ASME C&S Training Module C2 36 INDIAN HEAD v. ALLIED TUBE & CONDUIT CORP Outcome—Findings were –No “balance” of interest groups was observed. –All members of the association were allowed to vote on a proposal. –The recommendation of an unbiased panel of experts was unjustifiably ignored. –A proposal was allowed to fail without valid and objective criteria. –A manufacturer was precluded from selling its product on the open market.

38. ASME C&S Training Module C2 37 SESSIONS TANK LINERS v. JOOR MANUFACTURERS Complaint –A manufacturer used his position as an NFPA Code Committee member to defeat a proposed revision allowing a competitor’s process.

39. ASME C&S Training Module C2 38 SESSIONS TANK LINERS v. JOOR MANUFACTURERS Outcome: Findings of a member’s misconduct –Misrepresented data –Sent anonymous letters opposing the revision –Questioned the safety of the competitor’s process –Warned of legal implications –Called for a vote after the competitor had left the meeting, even though vote not on agenda

40. ASME C&S Training Module C2 39 VI.GENERAL GUIDELINES

41. ASME C&S Training Module C2 40 CODES AND STANDARDS DEVELOPMENT Things to keep in mind –Adoption or revision may: Increase the cost of a product Make nonconforming products unacceptable to buyers. –If the standard or revision is reasonable and objective, and does not discriminate unfairly between products, it should not be found to be unlawful. –Every volunteer is responsible for ensuring that all provisions of codes and standards have an objective technically sound basis.

42. ASME C&S Training Module C2 41 CODES AND STANDARDS DEVELOPMENT Ask yourself these questions: –Does the code or standard have a proper objective (e.g., safety or quality)? –Is the form the code takes suitable for the industry in question? –Is the code or standard based upon valid and objective criteria? –Is it the least restrictive standard possible?

43. ASME C&S Training Module C2 42 CODES AND STANDARDS DEVELOPMENT (cont’d) Ask yourself these questions: –Is the Standards Committee broadly based? –Are any potential conflicts of interest in the group considered and publicized? –Have opposing views been considered? –Are the procedures followed in developing or referencing a code or standard fair?

44. ASME C&S Training Module C2 43 FAIRNESS Means the following: –Adequate public notice of the proposed adoption of a standard –An accurate record of the considerations available –A formal and publicized appeals process –Periodic review and revision of standards to reflect current technology –All industry members have an opportunity to conform to the standards

45. ASME C&S Training Module C2 44 ISSUING INTERPRETATIONS Special consideration –Interpretations do not revise standard’s requirements; limited involvement by general public Guidelines –Interpretations should not appear to have an unreasonable effect on competition. –Objectivity and technical accuracy are essential. –They must be supported by specific wording in the code or standard. –Volunteer should avoid even the appearance of conflict of interest. –Report doubts to next highest level.

46. ASME C&S Training Module C2 45 CERTIFICATION Guidelines –Decision criteria must be objective, non- discriminatory and technically justifiable. –Safeguards against conflicts of interest are critical. NOTE: ASME procedures are in place for appeal upon denial of certification.

47. ASME C&S Training Module C2 46 VII.BASIC DO’S AND DON’TS

48. ASME C&S Training Module C2 47 BASIC DO’S AND DON’TS Don't attend any meetings under ASME auspices that do not a have a fixed agenda of matters to be covered.

49. ASME C&S Training Module C2 48 BASIC DO’S AND DON’TS Don't take part in any "rump" sessions at which matters before a committee or other body as a whole are to be discussed.

50. ASME C&S Training Module C2 49 BASIC DO’S AND DON’TS Don't discuss prices of competing or potentially competing products and don't disparage any particular product--whether or not it meets ASME standards.

51. ASME C&S Training Module C2 50 BASIC DO’S AND DON’TS Don't attempt to influence ASME standards activities and programs to benefit your own business activities or those of your employer in a manner not available to the public.

52. ASME C&S Training Module C2 51 BASIC DO’S AND DON’TS Don't discriminate against nonmembers of ASME or give preferential treatment to ASME Committee members.

53. ASME C&S Training Module C2 52 BASIC DO’S AND DON’TS Do make your company's interest in the subject clear to other members of your committee, when revising or interpreting a code or standard.

54. ASME C&S Training Module C2 53 BASIC DO’S AND DON’TS Do bring to the attention of ASME's officers or staff immediately any actual harm or potential harm related to a code, standard, revision, or interpretation.

55. ASME C&S Training Module C2 54 IN CONCLUSION Points to remember –The antitrust laws are complicated. Compliance is largely a matter of common sense and fairness. Ask: Does any action taken by ASME or its volunteers lead to an unreasonable restraint of trade? Is any particular business hurt by a code, standard, or interpretation, when it need not be to achieve a justifiable technical or public interest objective?

56. ASME C&S Training Module C2 55 SUMMARY I.The Antitrust Laws II.Standards Development Organization Act of 2004 III.A Brief History of ASME and Antitrust Cases IV.Related Antitrust Cases V.General Guidelines VI.Basic Do’s and Don'ts

57. ASME C&S Training Module C2 56 REFERENCES Legal Implications of Codes and Standards Activities: “A Guide to Antitrust Compliance for ASME Volunteer and Staff Members,” issued by Codes and Standards Board of Directors