United States: Elements of an Effective Antitrust Compliance Program

Companies increasingly recognize the value of adopting sophisticated compliance programs to ensure that their employees remain within the bounds of federal and state laws that prohibit price fixing and related activities.

A compliance program is worthwhile for the same reason an insurance policy is: to cover potentially devastating risks. Violations of criminal antitrust laws may result in felony convictions punishable by imprisonment and fines as high as $350,000 for individuals and $10,000,000 for corporations. Short of criminal liability, violations of antitrust laws may give rise to government investigations under both the Federal Trade Commission Act and similar state acts. Enforcement activity typically leads to private litigation, with the threat of treble damages, disruptive injunctions, and huge attorneys’ fees.

In addition to preventing antitrust violations, the existence of an antitrust compliance program may serve to mitigate the consequences of a violation that occurs in spite of the policy. The federal sentencing guidelines explicitly provide for lower penalties if a corporation has an effective program to prevent and detect violations of law (§8C2.5(f)). And some courts now instruct the jury that the existence of an antitrust compliance program may be evidence that the corporation itself did not intend to violate the antitrust laws.

An antitrust compliance program also educates company employees about permissible conduct under the antitrust laws. Without such training, the company could be at a competitive disadvantage because employees might refrain from aggressive business practices they mistakenly believe are illegal.

Most antitrust compliance programs consist of three elements: (1) audit of existing practices, (2) preparation and maintenance of an antitrust policy guidebook, and (3) ongoing employee education.

The first step in the establishment of an antitrust compliance program is ensuring that the company currently complies with all antitrust laws. Typically, companies retain outside counsel to review existing policies and practices. Such an audit identifies problem areas requiring immediate corrective action and pin-points aspects of the business to which the antitrust laws have particular relevance.

An antitrust audit normally consists of interviews with employees and a review of company documents. Counsel conducts interviews in small groups within the company, such as senior managers, those responsible for pricing decisions, anyone active in industry trade associations, and other key decision-makers.

Such interviews explore the company’s contacts with competitors in the course of everyday business operations, trade association meetings, and social gatherings. Audit interviews address such subjects as parallel behavior, common customers, common sources of products, price verification activities, patent arrangements involving competitors, joint ventures, and director interlocks. Trade association activities are especially sensitive.

It is important to examine the process by which the company makes pricing policy decisions and, in particular, how the company generates price variations, such as discounts. For example, counsel may note that a company’s quantity or volume discounts favor only a few large buyers when, under antitrust laws, the company should generally be making its services and facilities available to competing customers on a proportionately equal basis. Also, random checks of invoices and other documents concerning the delivery of goods for no charge may reveal hidden problems. Counsel must determine whether the company sells two or more separate products or services together and how the company prices those items.

It is also useful to examine the company’s relationship with its distributors because distributor termination policies and restrictions on distributor territories may generate antitrust litigation. For example, dual distribution, in which the company sells directly to customers, as well as selling to its own distributors, may give rise to antitrust concerns. A related question is whether a particularly powerful buyer uses its leverage to extract special terms or discriminatory discounts to stifle competition. Similarly, reciprocal buying agreements may implicate the antitrust laws.

The document review associated with an antitrust audit normally involves a sampling of company documents. The first step in a document review is to ascertain whether the company has an adequate document control program. If no such program exists, counsel would help the company implement one.

It is not uncommon for a document review to uncover troublesome material. How should a company handle such documents? If the document is related to an area that involves an investigation or pending litigation, the company must preserve it. In the absence of investigation or litigation, the company may properly destroy such documents pursuant to an existing document control (retention/destruction) policy. It may be appropriate for a company executive to write a memorandum to the file to accompany the document, disclaiming corporate acquiescence, with a copy of that memo going to the document’s author instructing him or her to desist from such conduct in the future.

The next step in the compliance program is the publication of a written policy statement or guidebook. The format of the policy statement may range from a simple letter to a full-fledged booklet, depending on the nature of the company.

The central purpose of the exercise is to provide clear guidance to company employees so that potential antitrust problems may be avoided. At a minimum, all company personnel who are likely to have any contact with customers, competitors, or suppliers should receive a copy. It may be useful to emphasize the importance of the policy by requiring each recipient to complete a form acknowledging receipt and attesting that he or she has read the policy.

At the outset, the guidebook should establish a goal of full compliance with the antitrust laws and should repeatedly encourage employees to seek guidance when antitrust questions arise. The guidebook must explain with specificity the harsh sanctions available under the antitrust laws and should also describe the employment-related consequences for employees who violate the company’s antitrust compliance policy.

The guidebook should contain a nontechnical discussion of antitrust laws and the philosophy behind them. It may be useful to illustrate potential antitrust violations, perhaps supplemented with a set of basic "do’s and don’t’s." It is particularly important to explain the concept of "contract, combination or conspiracy" so that employees understand the breadth of activity encompassed by antitrust laws.

An important element of the guidebook is a recitation of the company’s document generation and retention policies. A well-run company should encourage the generation of documents that record in some detail price changes and contacts with competitors in order to have helpful evidence should the need arise.

The guidebook should, of course, be drafted with the recognition that it may eventually be read by those outside the company, including government agents or litigation adversaries.

Once a company has developed and disseminated its antitrust policy, it must reinforce the policy through regular education of company personnel. For example, the antitrust policy may need to be updated to reflect new legal developments, and the materials distributed to employees should be updated as the company’s business evolves.

In addition, the company should schedule antitrust compliance meetings on a regular basis and no less than once a year. These meetings should occur on a department-by-department basis in order to emphasize antitrust issues of concern to different sectors of the company. Such meetings should allow for discussion generated by employee questions. A question-and-answer format permits counsel to ascertain potential problems and to suggest areas where additional compliance education would be appropriate.

Reprinted with permission of the American Corporate Counsel Association as it originally appeared: Ronald B. Ravikoff and Michael S. Pasano, "Elements of an Effective Antitrust Compliance Program," Zuckerman Spaeder’s Outside Counsel, Winter 2001: 3–4. Copyright © 2001 by Zuckerman Spaeder and the American Corporate Counsel Association. All rights reserved. For more information or to join ACCA, call 202/293-4103, ext. 360, or visit www.acca.com.