Cahooting in the First Degree: Antitrust Law Applies to Small & Mid-Size Businesses Too
“..cahoots being a legal term in Wyoming, see cahooting in the first degree, intent to cahoot, and so on.”
― Craig Johnson, Death Without Company
Allegations that Google and other giants have become monopolies, and the blocking of mega-mergers between companies as large as Anthem and Cigna, occasionally thrust anti-trust law into the mainstream media. Earlier this month, Facebook made headlines by hiring Kate Patchen away from her position leading the Department of Justice’s antitrust office in San Francisco. Politicians from both sides of the aisle are calling for increased scrutiny of potentially anti-competitive conduct.
Leaders of small to mid-sized business should be mindful of these trends. All the talk of monopolies and mergers can lead to a false sense of security that unless a company is dominating the market or acquiring all its competitors, antitrust law is not a concern. That is not the case. Antitrust law also focuses on collaboration among competitors – something many small to mid-size businesses are engaging in more frequently than ever to keep pace with larger counterparts.
State and federal antitrust enforcement agencies are charged with the responsibility of stopping competitors “in cahoots” with one another in ways that could raise prices or have a negative impact on free markets. The intent is that markets should function based on supply and demand, not based on agreements among competitors. Anti-competitive conduct can lead to criminal and civil enforcement actions brought by the Antitrust Division of the Department of Justice, the Federal Trade Commission or state enforcement agencies, as well as lawsuits brought by private parties. Price fixing and market allocation are two examples of collaborative conduct that can be considered illegal collusion.
Price fixing is an agreement among competitors about the prices they will charge. This includes express agreements on what to charge for a specific service or product but can also include less direct arrangements. For example, if competitors agree not to sell below or above a certain price, this can be considered price fixing, even if the specific prices of each company vary within the agreed-upon parameters. Similarly, price fixing can be an agreement to follow a certain formula in setting prices, an agreement to eliminate discounts, or an agreement among competitors as to when to raise prices or that they will not raise prices for a period of time.
Researching competitors’ pricing and deciding independently to “match it” is not price fixing, because it does not involve an agreement among competitors. On the other hand, even sharing pricing information with a competitor has sometimes led to anti-trust enforcement actions on the theory that sharing such sensitive information with a competitor is an indirect way to influence or stabilize pricing, even absent an explicit agreement on price. Notably, the reasonableness of the resulting price to consumers is not a defense to price fixing.
Market allocation occurs when competitors divide markets among them, such as quid-pro-quo arrangements to stay out of one another’s territories. Often, this takes the form of agreements not to advertise in a certain region, or to vary pricing by region so that consumers will naturally choose the company to which that territory “belongs.” Of course, markets can also be divided in ways unrelated to geography, such as agreements regarding sales to certain groups or classes of customers.
Organizations aimed at beneficial collaboration among competitors, such as trade associations, must also be careful that they are not facilitating indirectly any conduct that would be inappropriate if conducted directly between competitors. Additional guidance has been published by the enforcement agencies as to how some organizations, such as networks of health care providers, can pursue pro-competitive collaboration for the benefit of consumers without running afoul of antitrust laws.
Because antitrust analysis is highly fact-driven, McCarty attorneys are happy to work with you to better understand your unique circumstances and how to best achieve antitrust compliance while setting your business collaborations up for success.