DOJ Ramps Enforcement Towards Board Members Serving on Opponents’ Board

WHAT HAPPENED

• Seven administrators resigned from company boards following guarantees of enforcement of Clayton Act Part 8 (15 U.S.C. § 19) by the US Division of Justice (DOJ), Antitrust Division (the Division), the Division announced Wednesday.
• The administrators served on the boards of companies that the DOJ asserted competed in quite a lot of sectors, together with data expertise, software program, and manufacturing.

WHAT’S THE LEGAL CONCERN

• Part 8 prohibits “interlocking directorates” (per se violation), which happen when the identical particular person serves concurrently as an officer or director of two competing corporations (direct interlocks) or when completely different people on boards of competing corporations act on behalf of and on the path of a single agency (oblique interlocks via deputization). In its press launch, the DOJ famous that among the interlocks arose as a result of a personal fairness agency appointed completely different personnel to the boards of competing corporations.
• The purpose of Part 8 and the DOJ motion is to lower potential alternatives for the change of delicate data between rivals and the chance of anticompetitive conduct extra usually.
• Exemptions would possibly apply. There are de minimis exemptions if a) the competing gross sales are lower than $4.1 million (threshold up to date yearly); b) the competing gross sales of both company symbolize lower than 2% of its whole gross sales; or c) the competing gross sales of every company are lower than 4% of its whole gross sales. A cautious evaluation (just like that accomplished in merger evaluation) is important to find out whether or not an exemption would possibly apply.
• Not simply companies? Whereas the plain language of Part 8 refers to interlocks involving “companies,” the DOJ has said its view that Part 8 additionally covers interlocks between non-corporate entities, similar to LLCs (that is an open space of regulation).
• Not simply the identical particular person? Whereas the plain language of Part 8 states that it applies when the identical “particular person” sits on the board or acts as an officer of two rivals, the DOJ interprets Part 8 broadly to imply that two completely different people appointed by a standard entity can’t serve on boards of rivals as a result of the entity is a “particular person” and is serving on the boards via its designees.

WHAT ARE THE RISKS

• Interlocks can create important antitrust danger. Whereas the DOJ’s considerations with interlocks appear to be assuaged with the short removing of the Company Director recognized, interlocks have served because the factual underpinning for antitrust conspiracy claims. Subsequently, corporations needs to be proactive in eliminating problematic interlocks, because the interlock mixed with parallel motion by rivals in an trade may function the factual foundation for lengthy and expensive conspiracy investigations or litigation and will assist criticism allegations to defeat a Twombly-based movement to dismiss.

ANTICIPATE CONTINUED ENFORCEMENT

• Whereas the resignations are not novel, they symbolize a serious amplification of company responses to what Assistant Lawyer Basic Jonathan Kanter has described as “an in depth evaluate of interlocking directorates throughout the complete financial system” and a promise by the Division to “implement the regulation.”
• The Federal Commerce Fee (FTC) said in 2017 that it usually depends on “self-policing” with regard to figuring out interlocks; the current messaging and motion by the DOJ marks a transparent departure within the enforcement of a traditionally quiet space of the regulation.
• Enforcement on this space is anticipated to proceed. We perceive the DOJ has tasked its paralegals with reviewing HSR filings and public statements by corporations to “join the dots” to seek out and examine doubtlessly problematic interlocks. The Division signaled in its press launch that it’s going to proceed aggressively pursuing Part 8 claims: “Corporations, officers, and board members ought to count on that enforcement of Part 8 will proceed to be a precedence for the Antitrust Division.”
• Personal fairness and enterprise capitalists, specifically, ought to stay vigilant for potential oblique or deputization interlocks in the event that they appoint administrators at competing corporations, whether or not publicly traded or privately held, which may create legal responsibility underneath a deputization idea of hurt.