Antitrust Laws Apply to Everyone
Antitrust laws are a collection of federal and state laws that aim to protect consumers from predatory business practices by promoting fair competition.
Antitrust laws affect all industries. However, according to Bradley Love, partner in Barnes & Thornburg LLP’s Indianapolis office, companies in the aggregate industry face a number of antitrust violation risks.
Due to the nature of the aggregate industry, competition is often limited by geography and the high costs associated with opening and operating a quarry. In addition to already limited competition, the aggregate industry also has varying levels of integration, sells standard products and sells to governments. Each of these circumstances are risk factors for violating antitrust laws, Love said.
During a presentation put on by the National Stone, Sand and Gravel Association (NSSGA), Love explained what companies operating in our industries need to know to operate without violating antitrust laws, and some of the information may come as a surprise.
Anyone Can Break Antitrust Laws
The Department of Justice is one of the few government agencies that more than pays for itself, Love said, adding that the agency has levied more than $10 billion in criminal fines for antitrust violations since 2008.
More than 225 individuals have been sentenced to prison as a result of antitrust violations since 2009, with the average prison sentence lasting 27 months.
“There is no Law & Order: Antitrust Edition on TV, but it still carries grave consequences,” Love said. “These are not just slaps on the wrist. They are serious prison sentences.”
And with the DOJ’s program offering amnesty to the first qualifying company to report an antitrust violation–and reduced punishment to any resultant violating company who names additional companies guilty of antitrust violations–the DOJ has never been more empowered to find and pursue these cases.
“It’s easy to say, ‘That couldn’t happen to me. My friends in this industry aren’t like that. We’re small fish. They don’t care what we do,’” Love said, “but there are many examples from within the aggregate and construction industries that show they are quite prone to these issues.”
There have been a number of recent and significant antitrust cases within, or adjacent to, our industry. For example, in 2005, a group of competing ready-mix concrete suppliers met for drinks one evening and the conversation turned to limiting discounts on listed prices. Fines for each company ranged from $4.7 million to $29 million, and a number of senior executives were sent to prison.
More recently, the West Virginia DOT and four cities filed civil actions against eight paving companies, alleging illegal combinations and agreements inflating the price of asphalt production in the state in 2016. In 2017, the Kentucky Transportation Cabinet made public that the DOJ was conducting an antitrust investigation related to “construction, paving or asphalt projects” with the state’s Division of Construction Procurement.
“We all think we’re different until we get caught,” Love said. “It can happen in your industry, it can happen to you.”
And criminal fines and prison time are only the beginning. Injured customers and consumers can also bring forward civil lawsuits for up to three times the damages they claim to have incurred from the antitrust violation.
“Even if a company avoids criminal prosecution or fines, they may still see civil litigation,” Love said, adding that associated costs can easily overshadow any profits from overcharging customers.
What Constitutes an Antitrust Violation?
Many companies or individuals found guilty of antitrust violations may not even intend to break the law.
In the event of the ready-mix concrete antitrust violation mentioned above, the president of Builder’s Concrete thought that by not talking during the conversation about price fixing that he would be found innocent of an antitrust violation. The jury found him guilty and he spent 14 years in prison.
So, what actually constitutes an antitrust violation?
According to the Sherman Antitrust Act of 1890–where this all began–antitrust laws aim to promote unrestrained competition to reduce prices and increase consumer quality and choice. Although Congress has since expanded antitrust legislation, the intentions of the law remain the same.
Most violations happen in the form of horizontal agreements, or agreements with competitors.This might include price setting, limiting discounts, limiting production, dividing markets whether geographically or by customer, rigging bids, and limiting product quality or innovation. It can also include agreements to boycott customers, suppliers or rivals or agreements to set salaries and benefits, or to not recruit certain employees.
That list encompasses situations that you may not expect to be in violation. For example, if a customer said they are shopping bids, you cannot call your competitor to verify the bid the customer said your competitor offered.
If a customer gave you a competitor’s pricing information, unprovoked, you should also document when and where you received the information, and from who, to prove your innocence later, if need be.
Even benchmarking, which can be seen as lawful and even pro-competition, can be in violation when done wrong. Love said any benchmarking should be done through a third party, such as a trade association, provide historical data at least three months old, share only averaged data, and the results should be anonymous.
Love added that it’s important to realize that “talking shop” with competitors can very often be grounds for an antitrust investigation.
No Paper Trail, More Problems
A common misconception about antitrust violations is that there must be proof, often in writing. There does not need to be a written agreement. Speaking in code will not indemnify you. And good intentions–and even innocence–may not be enough.
Circumstantial evidence, such as the occurrence of a meeting between competitors, is often enough to prove a violation. The onus is on you to prove that these conversations were innocent.
“Most evidence in these cases comes from meetings,” Love said, adding that, “allusions in emails and even innocent comments that were not well thought-out can be turned against a company when the government starts looking into antitrust accusations.”
Even if these actions have innocent intentions, Love recommends documenting the reasons behind any conversation with any competitor.
For example, a customer asks its aggregate supplier to host a competitor for a tour of their facility. In that case, Love suggests the customer, or even an attorney, be present to ensure nothing improper is happening and be available as a witness, should an investigation be launched.
In the event that a conversation ever turns to an improper topic, Love said to leave immediately, make it known why you are leaving, and take notes about the event.
He also warns against any attempt to cover up communication with competitors, even if the communication was innocent in nature. The cover-up will give an illusion of guilt.
Love recommends saving all evidence you collect. Although the statute of limitations is 5 years on the criminal side, fraudulent concealment (hiding antitrust violations) can extend that timeline indefinitely.
Some agreements are allowed between competitors, but they are very limited. The include joint ventures that offer some benefit that does not restrict competition, joint bids on jobs too large for a company to bid alone, and activities to influence government, such as lobbying or other political activities.
Antitrust Agreements Between Buyer and Seller
Antitrust violations can come in the form of agreements with competitors, as mentioned above, but also between seller and customer (also known as a vertical agreement).
If investigated for a vertical antitrust violation, you will be required to prove that an agreement is reasonable and is supported by a legitimate business reason, such as improved quality or the development of a new product.
In industries like ours, it may be difficult to distinguish if an agreement is horizontal or vertical.
For example, a competitor may also be a customer. In that case, you will need to share pricing information to do business. In this case, only provide the information necessary for the transaction. Do not discuss other customer prices, purchases, bids, cost, capacity or any other topics.
In this event, if you sent out price increase letters, you should also be sure to send them to all customers (both customers who are also competitors and customers who are only customers) at the same time. Do not share them with customer-competitors first for any reason, or it could be inferred that you were colluding in advance of the increase.
Another potential problem pertaining to vertical agreements in our industry is any tying arrangement where a customer is required to purchase something they don’t want from you to be able to purchase something they need from you. This may be illegal if you have a high market share.
“There should be a reason for the tie, like volume discounts or cheaper distribution,” Love said. “That will not be a problem.”
Exclusive contracts, Love said, are generally permissible, as long as they don’t restrict competition.
Another situation which may arise is charging different prices to different customers. This is legal in most cases, unless you are selling a commodity product to competing resellers. Competing contractors could be considered resellers if they were bidding on the same highway job for the same materials and you offered them different prices. “That could be problematic,” he said.
You may, however, choose not to sell to any company or individual, but you cannot make an agreement to boycott a customer (or supplier) with a competitor. However, he said, it could be problematic if you are the only option available in that market. Non-payment, he added, is absolutely a valid reason not to sell to a customer, even if you are their only option in the market.
An Antitrust Prevention Plan
To protect yourself and your company from antitrust violations, Love recommends having, knowing and following an antitrust compliance program, as well as appointing a Chief Compliance Officer. However, that may not be within reach for companies of all sizes, so Love outlined ten commandments of antitrust purity, which you can read in the sidebar at XX.
The bottom line, though, is to compete vigorously with your competitors, and compete fairly through better products, better service and better prices.
The 10 Commandments of Antitrust Purity
- No bid rigging.
- No price fixing.
- No dividing markets.
- No boycotts.
- No recruiting or benefit agreements.
- No appearance of collusion.
- No illegal tying.
- No predation or monopolization.
- No bribes.
- Follow antitrust compliance policies, conduct training and monitor compliance.