Ten Things: Trade Associations and Legal Risk

One of the most interesting questions you can get as in-house counsel is this: “Hey, I am going to a meeting with some competitors tomorrow, is there anything special I should do to make sure I don’t get in trouble?”  A question like this is like a good law school exam – there is almost too much to talk about!  As most in-house counsel know, meetings between competitors can be tricky stuff and fraught with risk, both for the company and the employee.  Improper agreements between competitors (e.g., price fixing, bid rigging, dividing territory or customers) can lead to costly litigation, investigations, fines, damages (trebled), and even handcuffs and jail.  The only 100% safe route is no communications with competitors ever.  A restriction like this, however, is unlikely to win the legal department any friends at the company and is unnecessary as there are a number of situations where conversations between competitors are needed and completely appropriate.  The key is making sure the employees at your company, from the CEO on down, have a basic understand of the rules of the road for interacting with competitors and know when to contact the legal department for guidance.

One of the most likely scenarios where competitors interact is at a trade association meeting (in person or over the phone).  Trade associations can (and do) serve a number of pro-competitive purposes, including lobbying the government on behalf of its members, educating the public about the services and value its members bring to the table, and sponsoring standards setting exercises that encourage growth, interoperability, and innovation.  On the other hand, it’s important to understand that any time competitors interact — a trade association meeting, lunch, email conversation — there is always a chance that a perfectly innocent conversation or document will be misconstrued or taken out of context and unfairly presented as some type of nefarious, “smoke-filled” room agreement designed to thwart competition between the parties.   This edition of Ten Things will set out some basic steps you can take as in-house counsel to help educate and keep your business colleagues on the right side of line and out of trouble:

1. Have a written antitrust policy for your company. Before you worry about creating or joining a trade association, you need to focus inward and make sure you are doing the right things to train your employees on antitrust issues generally and with regard to competitor interactions specifically.  A written policy  sets out clear guidance and expectations for employees in this complicated area of the law.  Additionally, it will be helpful if your company ever gets crosswise with the U.S. Government as having a written antitrust policy that is part of a vigorous compliance program can be a mitigating factor under the sentencing guidelines.   Your policy should cover the antitrust basics (e.g., no price fixing or bid rigging, etc.), and contain a specific section on interactions with competitors (with an example or two relevant to your industry).  Make sure your policy states that before any competitor contact takes place, the purpose of the meeting and the agenda should be cleared with the legal department in advance.  Once the policy is in place, be sure to do regular training and reminders about antitrust issues for your company’s employees.  One helpful thing to do is to periodically send out an “all-hands” email if you see a news article on an executive getting into trouble over antitrust issues, explaining what happened and reinforcing the importance of compliance.  For a good summary of setting up an antitrust policy click here.
2. Prepare a concise statement regarding the trade association’s purpose and mission. Once you have your own house in order, you can turn your focus to ensuring your trade association is set up to succeed and operates in a manner compliant with the law.  Note that all of the points in this article also apply to an informal association (i.e., a coalition) of competitors – usually put together to address a single issue.[1]  Start with ensuring the association (or coalition) has a clear written statement of its purpose and mission.  It may seem a little silly but it can pay off in the event anyone challenges why a group of competitors were meeting in the first place.  Additionally, it sets the boundaries for the group and provides guidance on the types of matters and issues the association will deal with.
3. Use a written agenda. All trade association meetings should follow an agenda sent out in advance to the participants and approved by counsel.  Once you have an agenda, you need to stick to it.  The agenda should be clear and concise and leave no wiggle room for misinterpretation over what is being discussed.  The sensitivity about what was discussed stems from the fact that “agreement” with a competitor does not need to be in writing.  An agreement can be oral and informal, including what is commonly referred to as a “wink and a nod” among competitors sitting around the table.  Having a clear agenda (that you stick with) can minimize the risk of bad behavior or misinterpretation/miscasting of what occurred at a meeting.
4. Take minutes. Have minutes taken of each meeting that accurately reflect what occurred and have those minutes prepared (or at a minimum) reviewed by counsel prior to finalizing.  Promptly distribute the approved minutes to all of the participants and keep a copy in case needed down the road.  The final approved minutes should be the only minutes of the meeting. Members should not keep their own minutes.
5. Have counsel present. In a perfect world you would be able to have counsel at every trade association meeting or call.  That is not always possible or practical.  Assuming not, the trade association staff should be well trained on competition law issues and beginning each meeting with an antitrust ground rules reminder is a good idea.  Further, any meeting where the agenda contemplates discussing competitively sensitive information should have counsel at the meeting or on the phone.  If you’re not sure if your meeting involves competitively sensitive information, that is a sign to check in with counsel before proceeding with that item.
6. Know how to stop inappropriate conversations. As the FTC notes, the fact that you are participating in a trade association does not in any way transform inappropriate behavior into sanctioned behavior.  This point should be emphasized strongly with your business team and with all members of the trade association.  Clear problem areas include discussing current or future prices, costs, output levels, business and R&D plans, forecasts, etc.  If for some reason an improper topic is raised during the meeting, your trade association staff and members need to know in advance to shut those conversations down immediately (and if there is a question about whether the discussion is appropriate, the right course of action is to stop and only return to the topic after consulting counsel).  If the discussion continues, you may need to shut the entire meeting down or, at a minimum, leave the room and get your exit noted in the minutes (and report what happened to legal counsel).   These same rules apply outside of the formal trade association meetings, e.g., at dinner, on the golf course, etc.  Basically, every interaction between competitors is subject to scrutiny and therefore extra caution is required to ensure staying on the right side of the line.
7. Understand the limits on key trade association activities. In addition to promotion of their industry, there are several core matters most trade associations deal with, including: a) lobbying, b) data exchanges, and c) standard setting.  If done properly, all three can be valuable and pro-competitive.  But, care needs to be taken as there is no “blank check” for any activity of a trade association.  If you cannot do it outside the trade association then you cannot do it as part of a trade association.   For example, lobbying activity needs to be reasonably necessary to the goal and not a sham.  If there will be data exchanges between association members (e.g., for benchmarking or trade association marketing purposes), be sure that sensitive information is properly anonymized, aggregated and historical.  No current or future pricing/forecast information should be exchanged.  Ideally, any such data should be submitted to and compiled by a third party.  Also, any data sharing plan should be cleared with counsel in advance of handing over the data as you will want to avoid any appearance that the process is being used to somehow fix prices.  Standard setting can be a very pro-competitive action on the part of a trade association, especially if it spurs innovation and reduces costs.  That said, before a trade association engages in standard setting, the process and goals should be vetted with legal counsel.  Standards must be based on objective criteria and reasonably related to the goals the parties are trying to achieve.  They should generally be voluntary in that there is no agreement to compel compliance with the standards.
8. Make membership criteria objective and standardized. It’s no fun to not get invited to the party.  So, keep in mind that competitors who are not allowed to join a trade association can be the source of an antitrust complaint.  Even so, legitimate criteria for refusing membership is not an antitrust violation.  Be sure your trade association’s membership requirements are objective, transparent and non-discriminatory.   Similarly, if there is a process to expel a member, that process needs to be carefully vetted with counsel as well.  The operation and governance of the association is important too.  Ideally, there should be one vote per member (i.e., no weighted voting that would give large competitors a disproportionate say in how the association operates).  Election to the board of directors should be simple, transparent, and straight-forward.  Establishing membership criteria should be done in conjunction with the advice of counsel at the creation of the trade association and should be reviewed regularly to keep it current with the marketplace and the law.
9. Train the trade association staff/attendees. Your trade association should have its own antitrust policy and all of the association staff should have regular training in the area of antitrust.  If for some reason counsel is not present at a meeting, your next best line of defense may well be your well-trained professional staff.  Likewise, the business people who regularly attend trade association meetings for each company member should receive regular antitrust training.  It is also a good idea to go over some simple basic antitrust ground rules at the beginning of each meeting.  Every year the trade association should have a “health check” and work with counsel to ensure compliance with its policies and determine if anything needs to be changed or updated.  You should also meet regularly with you own internal clients to stay abreast of what is going on at the trade association meetings and make sure your internal clients are trained and understand that they need to contact the legal department if they have any questions regarding the activities of the trade association.   They need to “own” it just as much as the legal department.
10. Know the rules about document creation. Nothing new here.  As Joe Friday said on “Dragnet” – “Everything you say (or write) can be and will be used against you.”  Everyone — from the association’s board of directors, to the staff, to the members — needs to understand that poorly drafted documents (email, memoranda, minutes, agenda, handwritten notes, reports, studies, etc.) can land the association, the company members, and even individuals in hot water over antitrust issues.  Treat every document involving the trade association like a business document (e.g., professional in tone and language).  Teach them to pretend like every trade association document, email, or report begins with “Dear People Suing Us…”  Thinking about it in this light will help ensure people take time to draft truthfully, accurately and in a business-like manner.

Since antitrust law is complex and fact specific, it is very difficult to cover all of the potential areas where problems can arise (and you should seek advice of counsel for any specific situation).  Moreover, even if you do all of the things noted above, there is no guarantee that your trade association or any of its members will not get sued by a determined plaintiff, regardless of the merits (or lack thereof) of the claim.  All meetings with competitors can create risk.  That said, there is nothing inherently bad about competitors meeting and talking, so long as the guidelines above are followed and those attending the meeting are thoughtful and well trained about the risk areas.  There are a number of additional sources available free online through a simple search engine search.  The American Bar Association has a helpful book you can buy called Antitrust and Associations Handbook.  The DOJ and FTC have produced guidelines dealing with a wide range of competitor collaborations and they are worth reading.  These guidelines underscore the point that the rules around competitor interaction are the same regardless of whether there is a trade association involved or not.   Finally, this is another area where experienced outside counsel can provide value at many different phases and where you can demonstrate a proactive approach to managing your company’s risk profile.

Sterling Miller

April 16, 2015

(If you find this blog useful, please pass along to colleagues or friends and/or “Tweet” it. “Ten Things” is not legal advice or legal opinion.  It is intended to provide practical tips and references to the busy in-house practitioner and other readers. You can find this blog and all past posts at http://www.TenThings.net or www.sterlingmiller2014.wordpress.com. You can follow me on Twitter: @10ThingsLegal)

[1] For a great example of trade associations and competitor coalitions at work see this recent news article on the lobbying here in the U.S. over Middle Eastern airlines and subsidies.  You can almost guarantee that the members of each group have been counseled on the parameters of antitrust compliance with respect to the goals and actions of their associations and the discussions between participants.