INDUSTRIAL MINERALS ASSOCIATION - NORTH AMERICA (IMA-NA)
ANTITRUST GUIDE FOR IMA-NA MEMBERS
This is designed to be a layman's guide on how the antitrust laws apply to trade association activities, with particular reference to IMA-NA Board of Directors and committee work (including the work of subcommittees, "ad hoc" committees and task forces, which are considered committees for purposes of this guide). It is written for both the guidance of those Board and committee members who have no particular knowledge of this complicated subject, and to provide a useful reminder or "refresher course" for those who have had the benefit of antitrust advice from their own company counsel.
The Industrial Minerals Association - North America (IMA-NA) is a non-profit industry association representing many industrial minerals companies. Like other industry associations, IMA-NA is composed of member companies (many of whom are competitors of one another), representatives of which serve on its Board of Directors (the "Board") and on its committees.
Whenever competitors meet together problems can arise under the antitrust laws. If the meeting or other activities among competitors is conducted by or through a trade association, it is just as vulnerable to antitrust attack as if the same companies were meeting or acting together without the medium of an association. Trade associations generally seek, quite properly, to promote common industry goals which do not restrict competition, such as safety and health, effective representation before regulatory agencies, and promoting the industry's image. But if "cooperation" restrains competition, both the association and its members will be in trouble under the antitrust laws.
Antitrust enforcement is being emphasized as never before. The number of criminal and civil antitrust actions is steadily increasing. Congress has greatly increased both criminal and civil antitrust penalties, has made important procedural changes, and has substantially increased the budgets for the Antitrust Division of the Department of Justice and the Federal Trade Commission (FTC), the two federal agencies charged with antitrust enforcement. There are many antitrust prohibitions which may especially affect trade association activities, and such associations are not infrequently the targets of FTC and Antitrust Division investigations. In view of these developments, increased awareness of the applications of the antitrust laws to association activities is essential.
Like most reputable trade associations, IMA-NA's objectives and programs are well within the law. IMA-NA also makes every effort to prevent possible antitrust abuses from arising. But a large responsibility also rests upon IMA-NA's member companies---and particularly upon their individual representatives who serve on IMA-NA's Board and committees. This means that Board and committee members should know enough about this subject to be able, in their IMA-NA work, to avoid actions or discussions that might raise antitrust questions. The main purpose of this guide is to help all Board and committee members to recognize what is, or might become, an "antitrust question."
Some actions or discussions by members of a trade association are clearly illegal; many others are wholly legal and proper; and there is a sizable "grey area" or danger zone in between. This grey area between legal and illegal association activity is often vague and uncertain, and IMA-NA's policy is to keep far away from the doubtful zones.
IMA-NA's aim is not only to avoid actual violations of the law---IMA-NA wants to prevent even any appearance of violation which might invite suspicion or investigation on the part of the enforcement authorities. Even a preliminary antitrust investigation is very expensive and time consuming to an association and its members companies. To protect itself and its members in this respect, IMA-NA has adopted and observes several basic policies:
1. IMA-NA has well-defined, constructive objectives and programs which are designed to promote the overall interest of the industry and the public.
2. IMA-NA's organizational structure consists primarily of standing committees with specific and limited functional purposes; and activities concerned with pricing or marketing industrial minerals and mineral products are scrupulously avoided.
3. IMA-NA maintains various procedural safeguards in directing the manner in which the Board and committees are to function.
4. IMA-NA has adopted an Antitrust Statement, which is reviewed at every Board and committee meeting.
5. IMA-NA has approved the issuance of this "Antitrust Guide" to help member company representatives on the IMA-NA Board and on IMA-NA committees avoid problems under the antitrust laws.
THE FEDERAL ANTITRUST LAWS
Beginning in 1890, Congress enacted a series of statutes which are known collectively as the federal antitrust laws. These laws are designed to promote and preserve our competitive private enterprise system by encouraging free and open competition in open markets. The federal antitrust laws give the force of law to the philosophy underlying our economic system, namely, that a free market in which supply and demand operate to determine the conditions and terms of production, distribution and sale, and where each seller and a buyer deals independently, serves to achieve the most equitable allocation of high quality goods and services at the lowest cost to the nation as a whole.
The central core of federal antitrust legislation is formed by the Sherman Act (1890), the Clayton Act (1914), and the Federal Trade Commission Act (1914). Most states have also enacted antitrust laws similar to the federal statutes, but no attempt is made to discuss them in this brief manual. Similarly, there is no discussion herein of other areas of federal antitrust law (such as the Robinson-Patman Act and many parts of the Clayton Act) which may bear directly on the activities of individual companies but are usually not involved in association activities. The primary focus here is on horizontal conduct, i.e., conduct involving relationships between competitors, rather than vertical relationships such as those between a company and its customers.
Section 1 of the Sherman Act prohibits "contracts," "combinations" or "conspiracies" in restraint of trade or commerce. These are terms which have been legally interpreted to have broad meanings with respect to collective action or conduct by two or more persons, and they include agreements and understandings of all kinds, whether written or oral, formal or informal, which unduly restrain competition. Because of the collective nature of most trade associations’ activities, this section is the principal weapon used by the Department of Justice in antitrust suits against trade associations or their members. Such suits are usually based upon an alleged conspiracy or agreement among competitors to restrain trade. (The FTC also can, and does, challenge trade association activity which is alleged to lessen competition under Section 5 of the Federal Trade Commission Act, which prohibits "unfair methods of competition.")
Although the language of the antitrust statutes is deliberately general in its coverage, prohibiting "[every] contract, combination or conspiracy in restraint of trade" and "unfair methods of competition," the courts have defined a number of specific activities as inherently unlawful, the so-called "per se" offenses. The legality of other activities is determined by the "rule of reason," i.e., whether the activity is ancillary to the achievement of a legitimate business objective and is no more restrictive of competition than necessary to achieve that objective. Although, this necessarily involves difficult questions of interpretation, even here useful guidelines or antitrust compliance have evolved from the courts' decisions. The importance of obtaining legal counsel in any area of uncertainty cannot be overemphasized, for the sanctions imposed for violations of the antitrust laws are severe.
The federal antitrust laws are enforced by the Department of Justice through its Antitrust Division, and by the FTC. Government initiated enforcement actions frequently provide the basis for civil suits by private parties.
All of the following penalties can be imposed for violations of antitrust laws:
1. Imprisonment. Violations which are criminal offenses, including most prohibited collusive activities, are felonies. The Federal Sentencing Guidelines establish a minimum jail term of 4 to 10 months for first offenders. In addition, the minimum recommended sentence under the Guidelines is increased as the volume of commerce in question increases. Prison sentences are increasingly common, and convicted felons may be denied citizenship, voting and other privileges.
2. Fines. Criminal violations carry minimum fines of $20,000 for individuals and $100,000 for corporations under the Federal Sentencing Guidelines. However, the permissible range of fines for an individual is 4 to 10 percent of the volume of commerce; the range for an organization is from 20 to 50 percent of the volume of commerce affected. An individual may not be reimbursed by the individual's employer for fines paid, and fines are not deductible for income tax purposes.
3. Injunctive Court and Federal Trade Commission Orders. Orders and injunctions, which prohibit future violations or activities, can be imposed as a result of civil action brought by the Department of Justice, the FTC, or private parties, with far-reaching consequences. Such injunctions may contain sweeping prohibitions which go well beyond the scope of the violations charged, and prohibit conduct which is not itself considered contrary to the antitrust laws. Such orders can seriously limit freedom of corporate or association action, require burdensome and time consuming reporting obligations, cause day-to-day activities to be supervised by a court or agency, and even require dissolution of a trade association. Violation of an injunctive order issued by a court can result in contempt proceedings with attendant fines, while failure to comply with an injunction (e.g., a "cease and desist order") issued by the FTC carries penalties of up to $10,000 for each day the noncompliance continues.
4. Treble Damages. A sanction which has been applied with increasing frequency as private antitrust suits have rapidly increased in recent years is the "treble damage" provision of the antitrust laws, which allow persons or businesses injured by an antitrust violation to recover three times the amount of actual damages sustained. Single cases have resulted in hundreds of millions of dollars of damages being paid to private litigants. Thus, an antitrust violation could impair the financial resources of any corporation and significantly weaken its competitive position.
Prohibited Activities Generally. As noted above, many antitrust violations---and particularly those involving trade associations---result from concerted or collusive activity, that is, from an "agreement" between or among competitors which result in a restraint of trade. An illegal agreement may be proved in a number of ways. It need not be written, and seldom is. Rather, the term "agreement" in antitrust parlance may mean no more than knowing adherence to or a participation in a common scheme. Explicit promises, commitments, or assurances are not necessary to establish a violation, nor must the parties actually carry out the agreement. (This definition of "agreement" is assumed throughout the discussion below.)
Convictions for collusive activities can be based on a series of seemingly isolated facts which have been linked to present a chain of circumstantial evidence from which an agreement or conspiracy---a meeting of the minds---can be inferred; for example, identical price increases by competitors following shortly after a trade association meeting at which "business conditions" and the need of the industry for higher prices were discussed. For this reason it is important when participating in IMA-NA Board or committee work or other IMA-NA activities, which involve contact with other members of the industrial minerals industry, to avoid doing or saying anything which might even give an appearance of agreement with others in areas which may involve a lessening of competition.
Agreements Involving Price. Pricing is the most sensitive subject under the antitrust laws. "Price" in this context includes all the elements of the terms of sale: sales prices, discounts, allowances, freight, credit terms, pallet deposits, and all other services or conditions integrally related to a sale. Any agreement between competitors which fixes, stabilizes, maintains, bolsters, depresses, or tampers in any way with price is unlawful "per se." When an activity is unlawful "per se" under antitrust law, it means the activity is indefensible and illegal without further analysis of its reasonableness, good intentions, arguable benefits to the public, or extenuating circumstances. In short, there is no defense.
"Price-fixing" encompasses not only agreements with competitors on a selling price. It may also include, for example, agreement to buy up surplus minerals, to adhere to a formula for determining prices, to standardize discounts and any other agreement which has the net result of affecting the price structure of a product. Moreover, it is just as unlawful for competitors to agree on the prices at which they will offer to buy from their suppliers, as on those at which they sell. As previously, noted an agreement can be shown in a number of ways. Thus, even the mere exchange of price lists between competitors serves as evidence of an illegal price-fixing agreement.
The essential rule is that each seller must determine on its own the prices at which it purchases and sells. To avoid inferences of agreement or collusion---and there can be no exceptions---IMA-NA members must not engage in any direct or indirect discussions with any competitors regarding prices, pricing policies, or any other marketing policy which may affect pricing. The following are a few examples of activities which have been found by courts to constitute evidence of illegal price-fixing:
1. Some supermarket executives were held to have violated the Sherman Act on the basis of evidence which included a trade association meeting where one participant made remarks to the general effect that it was time to stop passing lower wholesale meat prices on to the consumers and keep some or it for themselves. After viewing this and other evidence in light of the article pricing practices, the court upheld a jury verdict that the attendees at the trade association meeting had engaged in an illegal conspiracy to keep wholesale prices low and retail prices high. (The jury awarded plaintiffs a verdict for over $32,000,000 plus the plaintiffs' attorneys' fees.)
2. In another case, the sales manager of the leading company in a market invited the sales managers of the other major companies in the market to a meeting at which he described a proposal for reclassifying distributors and changing discount schedules. No one present openly agreed to reclassify his distributors and change his discount schedules. Subsequent to the meeting, however, the leading company instituted the changes proposed at the meeting and the other companies, one by one, adopted the same distributor classifications and discount schedules. All of the companies and their sales managers were convicted of engaging in an unlawful conspiracy. The fact that all of the individual defendants were at the meeting, heard the discussion, and subsequently reclassified their distributors and changed their discount schedules, supported a jury finding that they had conspired to fix prices.
3. Sales officials of corrugated cardboard box manufacturers in the Southeast followed a practice of occasionally calling each other to determine quotes given on specific and current sales to identified customers. The Supreme Court held the practice illegal because it had the effect of stabilizing prices (i.e., it tended to limit price reductions and the range of price changes). The decision was reached in spite of an express finding that the calls did not result in an actual agreement on prices. Rather, each defendant, on receiving a request for pricing information, usually furnished the data with the expectation that reciprocal information would be furnished to him. This simple exchange of information was held to establish an unlawful combination conspiracy under the Sherman Act.
Agreement to Control Production or Sales. Competitors may not agree to limit or control production or sales. Any limitations on output by direct or indirect agreement are illegal "per se” and cannot be justified, even where the purpose is to preserve the industry or conserve natural resources.
Division of Territories or Allocation of Customers. Any agreement between competitors to divide or allocate either sales territories or customers is unlawful "per se." Exchanges of information with competitors relating to customers or territories can create the appearance of such collusion or agreement and must be strictly avoided.
Refusals to Deal. Any agreement among competitors which results in a refusal to deal with suppliers or other competitors---for example, a blacklist or boycott---is illegal "per se.” For this reason, exchanges of information concerning particular customers which might lead to a parallel decision not to deal should be avoided.
Application of Antitrust Laws to Trade Association Activities.
The valuable and proper activities of IMA-NA can be accomplished effectively if participating members are alert to the prohibited types of behavior described above and react quickly when danger signals appear. Obviously, IMA-NA activities should be conducted in such a way as to avoid any possible inference of agreement among its members with respect to prices, controlling production or sales, division of territories, or refusals to deal in any form whatsoever. Further guidelines are given here to highlight potential danger zones to be avoided. When a danger zone appears, your company's counsel should be consulted for specific advice. In reviewing the following guidelines there are a few general points you should bear in mind:
1. As indicated above, an otherwise lawful act may become unlawful if done for an improper purpose, or if it is part of a larger standardization program might be justifiable considered by itself, but not if it is combined with other activities to facilitate the fixing of uniform prices. In other words, the courts may look at the cumulative effect of several activities---not at each one separately.
2. Good motives are not an excuse for doing things that are otherwise unlawful, either because they fall within one of the "per se" categories discussed previously, or because they are more restrictive of competition than necessary to accomplish their legitimate objectives. Thus, even though a product standardization program may be intended to increase competition by providing consumers with important information, it may nevertheless be found unlawful if conducted in a manner more restrictive than necessary to achieve its legitimate purpose.
3. An ostensibly lawful program or activity runs a greater risk of getting into vulnerable areas if conducted by a group of competitors making the same product. That is the main reason why IMA-NA operates primarily through functional committees, each with a defined scope.
4. As a member of the IMA-NA Board or an IMA-NA committee, you and your company can be held responsible for any improper acts that may occur which you know about (or perhaps should know about) if you fail to protest or disassociate yourself from them.
Participation in IMA-NA Board and Committee Meetings.
It is the obligation of all IMA-NA Board and committee members to make sure that their own participation in Board and committee meetings will not give rise to even an inference of antitrust wrongdoing. Thus, even when carrying out approved and legitimate activities members must be careful to avoid discussions or exchanges of information with their competitors on any subject relating to the "per se" restraints listed above since such discussions or information exchanges may give rise to inferences of agreement. As examples, you should avoid any discussion with competitors of the following:
(a) Individual company prices, price changes, price differentials, mark-ups, discounts, allowances, credit terms, etc.
(b) Individual company figures on costs, production, capacity, inventories, sales, etc.
(c) Industry pricing policies, price levels, price changes, differentials, etc.
(d) Changes in industry production, capacity, or inventories.
(e) Transportation rates or rate policies of individual shipments or particular products, including freight equalization, etc.
(f) Bids on contracts for particular product or procedures for responding to bid invitations.
(g) Plans of individual companies concerning the production, distribution or marketing of particular products, including proposed territories or customers.
(h) Matters relating to individual suppliers or customers that might have the effect of excluding them from any market.
Regardless of subject matter, you should not attend or tolerate any IMA-NA Board meeting, committee meeting or general session with your competitors which has no agenda, or which is concerned with matters outside the Board's or the committee's scope.
It is important to avoid discussions of the above subjects not only at formal IMA-NA Board and committee meetings and general sessions, but also in connection with social or other gatherings on those occasions. If any improper discussion should start in your presence, you should protest; if the discussion continues, you should promptly excuse yourself from the group and communicate your protest to the appropriate IMA-NA staff person. Even if you do not take part in any improper discussion, your presence without participation could still get you and your company into trouble. Any individuals who participate in such improper discussions, whether deliberately or innocently, are doing their companies, and IMA-NA, a real disservice, and subjecting themselves to possible liability. In case of doubt as to whether a particular subject may properly be discussed with your competitors, you should consult your own company's counsel.
Care must be taken to avoid wording any written documents, including your own reports or notes from IMA-NA Board and committee meetings and IMA-NA general sessions, in a way that might be interpreted as indicating, contrary to fact, the existence of an antitrust violation. Every memorandum, letter and other document (including personal notes) dealing with prices, competition, or the other danger areas specified in this guide should be written with the assumption that it will one day be examined for antitrust implications. An antitrust case may be based on documents which are in reality innocent or innocuous but have been written in such a way as to create suspicion and require explanation. Such documents may include personal notes based on recollection, or taken at an IMA-NA Board or committee or other meetings, which record personal impressions rather than the facts of what transpired.
It is hoped that this guide will help you to understand how the antitrust laws bear upon trade association activities, and to carry out your IMA-NA work in full compliance with these laws and with IMA-NA policies. Again, please remember that this is a limited outline and is not intended to be a complete description of the application of the antitrust laws. For answers to specific problems, you should consult your own company's counsel.
INDUSTRIAL MINERALS ASSOCIATION - NORTH AMERICA
The Industrial Minerals Association - North America assigns the highest priority to full compliance with both the letter and the spirit of the antitrust laws, and it is vital that this meeting be conducted in a manner consistent with that policy. If at any time during the course of the meeting, staff believes that a sensitive topic under the antitrust laws is being discussed, or is about to be discussed, they will so advise the meeting and halt further discussion. As attendees at this meeting, you should likewise not hesitate to voice any concerns you may have in this regard. It is important to bear in mind that those in attendance at this meeting may be your competitors. Any discussions of commercial matters with one's competitors may create the appearance of an antitrust violation, even though there is none. Therefore, such discussions should be avoided at all time before, during, and after this meeting.
INDUSTRIAL MINERALS ASSOCIATION - NORTH AMERICA
ANTITRUST CHECKLIST FOR IMA-NA MEETINGS
This antitrust checklist is for use by IMA-NA staff and member company representatives in the conduct of IMA-NA-sponsored meetings. Prohibited discussion topics apply equally to social gatherings incidental to IMA-NA-sponsored meetings. The Checklist is not exhaustive and does not address antitrust issues relating to activities other than IMA-NA meetings. Participants in IMA-NA meetings also should be thoroughly familiar with "Antitrust Guide for IMA-NA Board and Committee Members.”
ENSURE STRICT PERFORMANCE IN AREAS OF:
- An IMA-NA staff representative will participate at each IMA-NA-sponsored meeting (unless an exception has been authorized by the President of IMANA). - Limit meeting discussions to agenda topics (unless additional topics have been approved by IMA-NA staff. - Provide each member company representative and IMA-NA staff representative attending an IMA-NA-sponsored meeting with a copy of this checklist and the IMA-NA Antitrust Statement, and have copies available for reference at all IMA-NA-sponsored meetings.
-Have an approved agenda prepared in advance and distributed by IMA-NA staff to meeting participants. -Prepare minutes which accurately reflect the matters which occur, with final minutes to be distributed only by IMA-NA headquarters.
-Fully describe the purposes and authorities of all task forces, work groups, or ad hoc or other standing committee subgroups in the minutes of the appropriate parent committee.
-Protest against any discussion or meeting activities which appear to violate this checklist, the IMA-NA Antitrust Statement or the Antitrust Guide for IMA-NA Board and Committee Members. Disassociate yourself from any such discussion or activities and leave any meeting in which they continue.
DO NOT, IN FACT OR APPEARANCE, DISCUSS OR EXCHANGE INFORMATION ON:
-Individual company prices, price changes, price differentials, markups, discounts, allowances, credit terms, etc.
-Individual company data on costs, production, capacity, inventories, sales, etc.
-Industry pricing policies, price levels, price changes, differentials, etc.
-Plans of individual companies concerning the production, distribution or marketing of particular products, including proposed territories or customers.
-Changes in industry production, capacity or inventories.
-Rates or rate policies for individual shipments, including freight equalization, etc.
Market Procedures, Including:
-Company bids on contracts for particular products or company procedures for responding to bid invitations.
-Matters relating to actual or potential individual suppliers or customers that might have the effect of excluding them from any market or influencing the business conduct of firms toward them.