Antitrust Compliance Training for Members of the Connecticut

Antitrust Compliance Training for Members of the Connecticut Chiropractic Council

CCC Antitrust Policy • The CCC or any committee, section, chapter or activity of the CCC shall not be used for the purpose of bringing about or attempting to bring about any understanding or agreement, written or oral, formal or informal, expressed or implied, among two or more members of other competitors with regard to prices or terms and conditions of contracts for services or products. Therefore, discussion and exchanges of information about such topics will not be permitted at CCC meetings or other activities. • There will be no discussions discouraging or withholding patronage or services from, or encouraging exclusive dealing with any supplier or purchaser or group of suppliers or purchasers of products or services, any actual or potential competitor or group of actual potential competitors, or any private or government entity.

CCC Antitrust Policy (cont’d) • There will be no discussions about allocating or dividing geographic or service markets or customers. • There will be no discussion about restricting, limiting, prohibiting, or sanctioning advertising or solicitation that is not false, misleading, deceptive, or directly competitive with CCC products or services. • There will be no discussion about discouraging entry into or competition in any segment of the marketplace. • There will be no discussions about whether the practices of any member, actual or potential competitor, or other person are unethical or anti-competitive, unless the discussions or complaints follow the proscribed due process provisions of the CCC’s bylaws.

CCC Antitrust Policy (cont’d) • Certain activities of the CCC and its members are deemed protected from antitrust laws under the First Amendment right to petition government. The antitrust exemption for these activities, referred to as the Noerr-Pennington Doctrine, protects ethical and proper actions or discussions by members designed to influence: 1) legislation at the national, state, or local level; 2) regulatory or policymaking activities (as opposed to commercial activities) of a governmental body; or 3) decisions of judicial bodies. However, the exemption does not protect actions designed to cover-up anticompetitive conduct.

CCC Antitrust Policy (cont’d) • Speakers at committees, educational meetings, or other business meetings of the CCC shall be informed that they must comply with the CCC’s antitrust policy in the preparation and the presentation of their remarks. Meeting will follow a written agenda approved in advance by the CCC or its legal counsel. • Meetings will follow a written agenda. Minutes will be prepared after the meeting to provide a concise summary of important matters discussed and actions taken or conclusions reached. • If a member of CCC is found to be in violation of CCC’s policies or guidelines with respect to the antitrust laws, they shall be subject to strict disciplinary action, including expulsion, even for the first offense in appropriate circumstances.

CCC Statement • The Connecticut Chiropractic Council is a not-for-profit organization. The Council is not organized for and may not play any role in the competitive decisions of its members, nor in any way restrict competition among members or potential members. Rather it serves as a forum for a free and open discussion of diverse opinions without in any way attempting to encourage or sanction any particular business practice. • The CCC recognizes the importance of the principle of competition served by the antitrust laws as well as the severity of the potential penalties that may be imposed on not only the CCC, but its members as well, in the event that certain conduct is found to violate the antitrust laws.

CCC Statement (cont’d) • Accordingly, CCC’s Board of Directors ensures that CCC will not commit any antitrust violations. • The CCC’s Board of Directors will ensure that no members will commit violations of the antitrust laws during a CCC meeting or discussion.

Federal and State Antitrust Laws • The purpose of federal and state antitrust laws are to protect consumers by eliminating practices in the marketplace that unreasonably restrict competition. • Aggressive enforcement has subjected violators to large fines and/or penalties. • Federal law also criminalize certain antitrust violations resulting in prison time. • The vast majority of cases prosecuted criminally under federal antitrust laws involve allegations of “hard-core” per se unlawful conduct such as horizontal price fixing, bid-rigging, boycotts, and market or customer allocations.

Aggressive Federal Enforcement • • • At the close of FY 2007, the Department of Justice had 135 pending grand jury investigations for violations of the Federal antitrust laws, including more than 50 investigations of suspected international cartel activity. In FY 2007, the Department of Justice imposed $630 million in fines for violations of the Federal antitrust laws. Since 1998, the Department of Justice has imposed over $3. 8 billion in fines for violations of the Federal antitrust laws, of which well over 90% were obtained in connection with the prosecution of cartel activity. Maximum penalties are: – Ten years in jail and $1 million fines for individuals, and – $100 million or “twice the gross gain or gross loss” fine for corporations, which has resulted in fines up to $500 million. In addition, those found liable for violating the antitrust laws may be subject to paying restitution, treble damages, attorneys’ fees, and/or subject to injunctive relief.

Prison Sentences in 2007 • • • 87% of individuals charged by the Department of Justice with violating the Federal antitrust laws were sentenced to prison. Average prison sentence for incarcerated defendants charged by the Department of Justice with violating the Federal antitrust laws was 31 months. Record number of prison days imposed for violating the Federal antitrust laws – 31, 291 jail days.

Corporate Fines of $100 Million or More F. Hoffmann-La Roche, Ltd. (1999) Vitamins $500 Million Korean Air Lines Co. , Ltd. (2007) Air Transportation $300 Million British Airways (2007) Air Transportation $300 Million Samsung Electronics Company, Ltd. & Samsung Semiconductor, Inc. (2006) DRAM $300 Million BASF AG (1999) Vitamins $225 Million Hynix Semiconductor, Inc. (2005) DRAM $185 Million Infineon Technologies AG (2004) DRAM $160 Million SGL Carbon AG (1999) Graphite Electrodes $135 Million Mitsubishi Corp. (2001) Graphite Electrodes $134 Million UCAR International, Inc. (1998) Graphite Electrodes $110 Million Archer Daniels Midland Co. , (1996) Lysine & Citric Acid $100 Million

Aggressive State Enforcement • Violations of the Connecticut Antitrust Act (Conn. Gen. Stat. Section 35 -24) subjects an individual to a civil penalty of up to $25, 000, and subjects a business or corporate entity held to have violated the Act to a civil penalty of up to $250, 000. • In addition to civil penalties, those found liable for violating the Act may be subject to paying restitution, treble damages, and attorneys’ fees. • A corporate entity that has held to have violated the Act may also lose its right to do business in the State of Connecticut and/or lose the ability to bid on state contracts.

Dealing with Competitors • Principle focus: Agreement with competitors not to compete in some way (on price, output, customers, sales territories, etc. ) • Core Do Nots: – Price fixing – Output restraints – Concerted Refusals to Deal (Group Boycott) – Bid rigging – Dividing customers or markets • Another sensitive area is “benchmarking” or “information exchanges”.

“Agreement” • The legal definition of "Agreement" is very broad. To prove a conspiracy, participants must have reached a mutual understanding to accomplish a common purpose. • It is not necessary to prove: – an express, formal or written agreement – meetings or direct communications • “Agreement” may be oral or written, formal or informal, explicit or implicit • An agreement may be entirely unspoken and proved via circumstantial evidence. – “a wink and a nod” are enough

"Agreement" or "Concerted Practice“ • Can be inferred from circumstantial evidence. • For example: – Simultaneous price increases. – Evidence of widespread benchmarking/information sharing of current information. • The key question: Are the defendants’ actions consistent with their individual economic interest or do their actions only make sense if they are acting in concert? • Events, meetings, and conference calls are venues at which competitors could “conspire”

Price Fixing • Price fixing can take many forms, and any agreement among competitors that restricts price competition violates the antitrust laws. Examples of price fixing agreements include those where competitors agree to: – Establish or adhere to price discounts; – Hold prices firm; – Eliminate or reduce discounts; – Adopt a standard formula for computing prices; – Maintain certain price differentials between types, sizes or quantities of goods or services; – Adhere to a minimum fee or price schedule; – Fix credit terms; or – Not advertise prices.

Price "Signaling" • Proper – Simply announcing a price increase – Unilaterally following a competitor's price increase • Improper – Explaining pricing strategies through channels designed to "get the message" to competitors. – Public statements of an intent to reduce the level of goods or services to build support for a price increase or to improve industry investment economics, may be interpreted as "an invitation to competitors to join a coordinated price increase".

Customer or Territorial Allocations • An agreement in which competitors divide markets among themselves: – Competitors agree to allocate customers among themselves; or – Competitors agree to allocate territories or geographic markets

Concerted Refusals to Deal (Group Boycotts) • Urging, inciting or signaling competitors not to deal with a buyer or a seller • Business decisions not to deal with a buyer or a seller that are made independently do not violate the antitrust laws. On the other hand, a joint decision not to deal with a buyer or seller will run afoul of the antitrust laws. • The “gray area” revolves around when conduct is independent and when it crosses the line to a coordinated agreement.

Concerted Refusals to Deal (Group Boycotts) (cont’d) • Factors that might lead to the inference that conduct amounts to a boycott include: – Keeping membership apprised of who has declined to deal with a buyer or a seller; – Communications to membership along the lines of “good luck if you can make money on this”, or “if enough of us refuse to participate, they’ll have to raise the price”, may be seen as communications amounting to a call for a boycott. • While those trade association members that did not agree to the boycott would not be liable, sorting out who participated in the agreement would be a factual dispute.

Bid Rigging • Bid rigging is the way that competitors conspire to raise prices when purchasers, including state and local government, seek to acquire goods or services by soliciting competing bids. • Practices that raise “red flags” (and avoid): – Last minute changes to bid documents at time of submission – Discussions with competitors immediately prior to submitting bids – Statements that a given contract “belongs” to a particular bidder • Any of the above may support an inference of an agreement to rig bids

Types of Bid Rigging Schemes • Bid suppression–an agreement between competitors to either refrain from bidding or withdrawing a submitted bid so that a designated competitor’s bid will be accepted. • Complementary Bidding–also called “cover” or “courtesy” bidding occurs when one or more competitors agree to submit bids that are either too high to be accepted or contain special conditions that will not be acceptable to the purchaser. This includes those situations where you did not intend on bidding but agree to do so to “help out” a competitor. • Bid rotation–In this scheme all conspirators submit bids, but take turns on being the low or winning bidder. • Subcontracting–Competitors agree not to bid or to submit a losing bid in exchange for subcontracts from the successful low bidder.

Vertical Restraints • Agreements with suppliers, customers or resellers to: – Set minimum prices – Set maximum prices – Suggest or promote resale prices – Restrict or allocate sales territories • In some respects, the current law is unsettled, although generally now judged under the “rule of reason” (weighing the competitive harm against the procompetitive justification for the practice).

Vertical Agreements that Might Give Rise to Liability • • Fixing specific or minimum resale prices. Cutting off a reseller that prices below a prescribed level. Cutting off a reseller at the request of a competing reseller. Unlawful tying agreements (I’ll only sell you my pencils if you also purchase my eraser).

Vertical Agreements that Usually Do Not Pose Problems • Exclusive territories for resellers • Bundling or tying where (company name) has no market power or where the products are offered separately. • Suggesting or promoting reseller-advertised resale prices.

Tying Agreements • It is unlawful to require the purchase of one product in order to purchase a second product where: – A company has market power (usually a very large market share and the ability to raise prices) in the first (i. e. tying) product. – The products can be and are sold separately. – There is no legitimate business justification for requiring that they be purchased together.

Monopolization • The intentional acquisition or maintenance of the power to control prices or exclude competition. • Elements: – 1. Market Power – 2. Abuse of monopoly position • The existence of monopoly power is not illegal, it’s the illegal use of that power that runs afoul of the law. • “Abuse” could include any type of “predatory” or “exclusionary” conduct. • Exclusionary conduct may include conduct that has no apparent rational business purpose other than their adverse effect on competitors such as (i) a refusal to deal with competitors, customers or suppliers, (ii) exclusionary boycotts, or (iii) exclusive deals that foreclose competitors from a substantial portion of the market.

Monopolization (cont’d) • Predatory conduct is defined as pricing below an appropriate measure of cost for the purpose of eliminating competitors in the short run and reducing competition in the long run. • “Abuse” does not include simply charging a monopoly price or refusing to sell to a customer for legitimate business reason, even if that customer is a competitor.

Participation in Trade Associations • Trade association meetings are always scrutinized in antitrust investigations and litigation. • Conventional breeding ground for antitrust conspiracies. • Trade Associations are valuable in helping to develop and communicate public policy and improve economic efficiency, however, everything a trade association does is by “agreement” of competitors which creates the danger of a “conspiracy”

Activities To Avoid • Do not discuss current or future prices, costs, or output levels – What price to sell or buy at • Avoid discussing individual or industry prices, price changes, projected prices, price differentials, mark-ups, discounts, allowances, credit terms, or any other terms or conditions related to sales or service including credit terms or other data that bear on prices including profits, margins or cost – How much to sell or buy • Avoid discussing individual company or industry figures on costs, production, capacity, inventories, sales, etc. . , except in connection with an approved, trade association sponsored data collection project – Whom to sell to or buy from

Activities To Avoid (cont’d) • Whether or not to deal with someone • Business strategy or bidding tactics – Do not use association meetings to “announce” business strategies – Do not discuss plans of individual members regarding the design, characteristics, production, distribution, marketing or introduction dates of particular products or services, including proposed territories or customers • Do not discuss elimination, restriction or limitation of the quantity or quality of any product or service to be sold or division or limitation of sales to particular territories, customers or classes of customers • Do not discuss changes in industry production, capacity or inventories

Activities To Avoid (cont’d) • Do not discuss matters relating to actual or potential individual suppliers or customers that might have the effect of excluding them from any market or of influencing the business conduct of firms toward such suppliers or customers • Do not discuss who will win a bid or bids on contracts for particular products or services or procedures for responding to bid invitations or specific contractual arrangements • Market-place reactions to public policy • Do not use association meetings to comment on market trends • Avoid conducting joint research without prior consultation with antitrust counsel regarding the particulars of such a proposal

Activities To Avoid (cont’d) • Avoid discussing individual current or projected cost of procurement, development or manufacture of any product or service • Do not use association meetings to negotiate commercial terms jointly with customers or suppliers • Do not discuss individual market shares for any products or services

Permissible Activities • Have a written antitrust policy warning all members against participating in any prohibited activity • Policy should be distributed or otherwise made available at all meetings • Have antitrust counsel present at all trade association meetings • Prepare and adhere to advance written meeting agendas • Avoid informal business meetings outside of the presence of counsel or other trade association members • Ensure that the minutes of all meetings fully and accurately describe all the matters that transpire and that those minutes are distributed to the members

Permissible Activities (cont’d) • Protest any discussions or meeting activities that appear to violate the law. If the discussion continues, you should promptly excuse yourself from the group, insist that the minutes reflect your departure and communicate your protest to the appropriate trade association staff member as well as your company counsel • Consult with legal counsel on all antitrust questions related to the trade association’s activities, particularly with regarding to lobbying activities, data collection and standard setting

Information Collection and Exchange • This is a complicated area and antitrust counsel should be consulted prior to any type of data collection and exchange activity • Structure data collection procedures to eliminate even the appearance of using the data or the collection process to fix prices • Generally only “historical” prices, costs, capacity and output levels • Avoid forecasts of any kind • Aggregate data sufficiently before publication • Avoid making an individual firm’s data available to members of the trade association • Trade association or third-party contractor should collect and aggregate the data

Information Collection and Exchange (cont’d) • Establish firewalls and other measures to ensure that raw data is not shared among competitors • Consider providing data collected to customers or to the public

Lobbying • This is a complicated area and antitrust counsel should be consulted prior to any type of lobbying activity • Noerr-Pennington exempts lobbying activities (i. e. , attempts to influence judicial or other adjudicatory, government, legislative, and regulatory actions; political expression) from antitrust law but it is very limited protection • Only protects action “reasonably necessary” for the lobbying, does not protect direct actions that have an effect in the marketplace • Focus on broad policy arguments • Lobby only high-level officials • Refuse requests for a single point of contact for negotiations • Remind everyone that companies act independently in the market

Lobbying (cont’d) • The doctrine is court-made and takes its name from two Supreme Court cases, Noerr, cited as Eastern R. Conf. v. Noerr Motors, 365 U. S. 172 (1961) (No violation of the Sherman Act can be predicated upon mere attempts to influence the passage or enforcement of laws, and the Sherman Act, therefore, does not prohibit two or more persons from associating together in an attempt to persuade the legislature or executive to take particular action with respect to a law that would produce a restraint of monopoly), and Pennington, cited as United Mine Workers v. Pennington, 381 U. S. 657 (1965).

Lobbying (cont’d) • The Noerr-Pennington Doctrine does not immunize all contact with government. The Federal Trade Commission has identified three types of potentially anticompetitive conduct: – Requests for ministerial acts; – Misrepresentations to a government decision maker in a nonpolitical context; and – Repetitive requests for governmental action filed regardless of merit solely to use the government process, rather than the outcome of the process, to injure competitors.

Lobbying (cont’d) • Noerr protection does not extend to efforts to influence private organizations, at least by economically sophisticated parties (i. e. , if the restriction flows from private action as opposed to government action, Noerr protection is unlikely unless court finds that the private restriction is incidental to a valid effort to influence government action (i. e. , action is chiefly political rather than commercial) • there must be a petition of the government or other legislative body, not simply communication between two private parties threatening litigation or government action

Lobbying (cont’d) • Noerr also does not protect “sham petitioning” – engaging in conduct not designed to secure the benefits of government intervention but rather to impose burdens upon rivals, regardless of outcome, by forcing them to defend themselves or incur substantial costs to gain access to the processes of government – examples include alleged misuse of the adjudicatory process such as where a competitor files a baseless request that a governmental body deny a rival’s petition for regulatory approval, commences administrative proceedings to impede a rival’s access to government process, or institutes administrative proceedings to inflict substantial costs of defense upon a rival

Lobbying (cont’d) • Conspiracies with Public Officials – no Noerr protection when government officials conspire with a private party to employ government action as a means of stifling competition • Government Acting in Commercial Capacity – commercial exception to Noerr immunity where the government body acts in a purely commercial or proprietary capacity (i. e. , as a commercial participant in a given market)

Standard Setting • This is a complicated area and antitrust counsel should be consulted prior to any type of standard setting activity • Ensure due process in creating and enforcing standards • It may be necessary to include non-member competitors • Consider including customers or others involved in the business • Do not set standards that hinder new products or new entrants • Do not influence the association to adopt a standard that benefits your product or service and disfavors competing products or services • Always document the benefits and rationale for any standard setting activity • Consider a “business review request” to DOJ or FTC

Other Permissible Trade Association Conduct • • • Sponsoring trade shows Publishing trade journals Collecting and disseminating (aggregated) industry data Statistical reporting of past costs, production, sales, etc. . Product and market research Advertising and promotion Seminars for industry members Monitoring and reporting on government actions Educational activities in areas such as marketing, product development, quality of care, codes of ethics and best industry practices

Requirements of Stipulated Judgment with Connecticut Attorney General’s Office • Cease and desist from entering into, adhering to, participating in, maintaining, organizing, implementing, enforcing, or otherwise facilitating any combination, conspiracy, agreement, or understanding between or among any chiropractors: – To negotiate on behalf of any chiropractor with any payer regarding any term, condition, or requirement upon which any chiropractor deals, or is willing to deal, with any payer, including, but not limited to, price terms; or – To deal, refuse to deal, or threaten to refuse to deal with any payer.

Requirements of Stipulated Judgment with Connecticut Attorney General’s Office (cont’d) • Cease and desist from requesting, proposing, urging, advising, recommending, advocating, or attempting to persuade in any way any chiropractor to deal or not deal with a payer, or accept or not accept the terms or conditions, including, but not limited to, price terms, on which the chiropractor is willing to deal with a payer; • Cease and desist from exchanging or facilitating in any manner the exchange or transfer of information among chiropractors concerning any chiropractor’s willingness to deal with a payer, or the terms or conditions, including price terms, on which the chiropractor is willing to deal with a payer;

Requirements of Stipulated Judgment with Connecticut Attorney General’s Office (cont’d) • Cease and desist from organizing, sponsoring, facilitating or participating in any meeting or discussion that the CCC expects or reasonably should expect will facilitate communications concerning one or more chiropractors’ intentions or decisions with respect to entering into, refusing to enter into, threatening to refuse to enter into, participating in, threatening to withdraw from, or withdrawing from any existing or proposed participation agreement; • Cease and desist from continuing a formal or informal meeting that the CCC expects or reasonably should expect will facilitate communications concerning one or more chiropractors’ intentions or decisions with respect to entering into, refusing to enter into, threatening to refuse to enter into, participating in, threatening to withdraw from, or withdrawing from any existing or proposed participation agreement;

Requirements of Stipulated Judgment with Connecticut Attorney General’s Office (cont’d) • Cease and desist from continuing a formal or informal meeting of chiropractors after any person makes any statement concerning one or more chiropractors’ intentions or decisions, that if agreed to would violate this Judgment, unless the CCC immediately ejects such person from the meeting; • Cease and desist from continuing a formal or informal meeting where the CCC knows or reasonably should know that two or more persons are communicating concerning one or more chiropractors’ intentions or decisions with respect to entering into, refusing to enter into, threatening to refuse to enter into, participating in, threatening to withdraw from, or withdrawing from any existing or proposed participation agreement;

Requirements of Stipulated Judgment with Connecticut Attorney General’s Office (cont’d) • Cease and desist from attempting to engage in any action prohibited by this Judgment; and • Cease and desist from encouraging, suggesting, advising, pressuring, inducing, or attempting to induce any person to engage in any action that, if taken by the CCC, would be prohibited by this Judgment.

Requirements of Stipulated Judgment with Connecticut Attorney General’s Office (cont’d) • The CCC agrees that for a period of five (5) years from the date of this Judgment, the CCC shall: – Maintain a copy of each document distributed at each meeting of the CCC’s board of directors, the CCC district meeting, or seminar or training session sponsored in whole or in part by the CCC for a period of five (5) years from the date of distribution, along with records showing the date of the meeting or seminar at which the document was distributed; and – Maintain a copy of each document relating to the CCC’s compliance with the antitrust training and education program required by this Judgment and which is distributed to any CCC member or members for a period of five (5) years from the last date of its distribution, along with records showing the date(s) of distribution and each person to whom the document was distributed.

What is my role in antitrust enforcement? • If you encounter business behavior that appears to violate the CCC’s Antitrust Policy, you must notify: – Dr. David N. Steinberg (District Director) • Information provided will be kept confidential • You will not be subject to retaliation for alerting CCC officials to possible illegal, improper conduct or breaches of CCC’s Antitrust Policy. • If you suspect that someone within CCC has committed a violation of the antitrust laws and you say nothing, you could be held criminally responsible or expelled from CCC.

How do I report a violation? • If you suspect that a CCC member has violated CCC’s Antitrust Policy or the requirements of Stipulated Judgment with the Connecticut Attorney General’s Office and you do not report it to appropriate CCC officials, you could be subject to disciplinary action. • If you suspect an antitrust violation among competitors inquiries can be made to: Michael E. Cole, Assistant Attorney General Chief, Antitrust Department Office of the Connecticut Attorney General 55 Elm Street Hartford, CT 06106 860/808 -5040

Hypothetical #1 • Members of a trade association are upset with the reimbursement amount a state agency will pay their company for a particular good or service. • The members discuss the perceived unfairness with the level of reimbursement, voice their displeasure amongst themselves and some make the statement they will not participate in the program. • Subsequent to the meeting, many of the members decline to provide services/good or otherwise participate in the program. • Have they engaged in an illegal boycott?

Hypothetical #1 – Analysis • Decisions whether to participate that are made independently do not violate the antitrust laws. On the other hand, a joint decision not to participate in order to pressure the agency into raising the price will run afoul of the antitrust laws. • The “gray area” revolves around when conduct is independent and when it crosses the line to a coordinated agreement. Factors that might lead to the inference that conduct amounts to a boycott include: – keeping membership apprised of who has declined to participate; – communications to membership along the lines of “good luck if you can make money on this”, or “if enough of us refuse to participate, they’ll have to raise the price”, may be seen as communications amounting to a call for a boycott.

Hypothetical #1 – Analysis (cont’d) • While those trade association members that did not agree to the boycott would not be liable, sorting out who participated in the agreement would be a factual dispute.

Hypothetical #2 • You are at a trade association meeting. The talk turns to the state of market and where people expect prices to go. Is it okay to participate in the discussion?

Hypothetical #2 – Analysis • No. You should not participate in or remain at a meeting of competitors at which current or future prices are discussed. You should also clearly voice your objection to such discussions and report the incident to appropriate official.