Governance

• Pages: 11-33

11

GOVERNANCE

A. Sources of Antitrust Concern

Among the actions that antitrust law seeks to prevent are

conspiracies and collusion in restraint of trade. Yet, as regulators

recognize, “in modern markets, competitors sometimes need to

collaborate.”1Whether a certain arrangement within or between business

entities will be anticompetitive depends on its terms and objectives, as

well as the relative economic independence of the entities involved.

Section 1 of the Sherman Act (Section 1) prohibits agreements

between competing independent economic actors to fix prices, allocate

markets, rig bids, and participate in other forms of concerted action.2

Accordingly, the “distinction between unilateral [conduct],” meaning

conduct by a single independent economic actor, and “concerted

conduct,” meaning conduct between multiple independent economic

actors, is necessary to determine whether a Section 1 violation has

occurred. 3Complicated organizations such as private equity groups,

which often oversee dozens of affiliated entities, face challenges when

determining whether internal agreements between them constitute

concerted or independent action.

Challenges also arise with respect to Section 8 of the Clayton Act

(Section 8), which regulates director and management interlocks between

competing corporations. Certain interlocks are prohibited even between

companies in which the same private equity firm holds interests.

B. Separate Entities Capable of Conspiring

A fundamental component of U.S. antitrust law is the prevention of

collusion, or “concerted activity,” between competing independent

economic actors, such as agreements to fix prices or allocate markets.

1. FED. TRADE COM M’N&U.S. DEP’T OF JUSTICE, ANTITRUST GUIDELINES

FOR COLLABORATIONS AMONG COMPETITORS (2000) [hereinafter

COMPETITOR COLLABORATION GUIDELINES], available at http://www.ftc.

gov/os/2000/04/ftcdojguidelines.pdf.

2. 15 U.S.C. § 1.

3. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769

(1984).

12 Private Equity Antitrust Handbook

Advising on the risks of such behavior, the U.S. Supreme Court asserted

that:

Concerted activity inherently is fraught with anticompetitive risk. It

deprives the marketplace of the independent centers of decision maki ng

that competition assumes and demands. In any conspiracy, two or more

entities that previously pursued their own interests separately are

combining to act as one for their common benefit. This not only

reduces the diverse directions in which economic power is aimed but

suddenly increases the economic power moving in one particular

direction. Of course, such mergings of resources may well lead to

efficiencies that benefit consumers, but their anticompetitive potential

is sufficient to warrant scrutiny even in the absence of incipient

monopoly.4

1. The Copperweld Doctrine

In the landmark case, Copperweld v. Independence Tube,5 the

Supreme Court held that because a parent corporation and its wholly-

owned subsidiary “have a complete unity of interest,” their corporate

actions are guided by a single “corporate consciousness[].”6 Therefore,

under Section 1, a parent and its wholly-owned subsidiary are legally

incapable of conspiring with each other. 7 Because a wholly-owned

subsidiary will act and make its decisions for the benefit of its parent, the

two are considered one and the same for Section 1 purposes.8

The Court further noted that a parent and its wholly-owned

subsidiary maintain their common purpose even when the parent does

not hold a “tight rein” over the subsidiary’s day-to-day actions because

“the parent may assert full control at any moment if the subsidiary fails

to act in the parent’s best interest[]” via, for instance, merger, or

dissolution.9 Further, it does not matter whether the parent monitors the

daily activities of its subsidiary, or whether the subsidiary has separate

officers or headquarters from the parent.10 The Court determined that

such factors “cannot overcome the basic fact that the ultimate interests of

the subsidiary and parent are identical, so the parent and the subsidiary

4. Copperweld, 467 U.S. at 768–69.

5. Id. at 752.

6. Id. at 771.

7. Id.

8. Id.

9. Copperweld, 467 U.S. at 771–72.

10. Id. at 772 n.18.