Managing Distribution: How to Develop A Corporate Legal Compliance Program

• Pages: 139-159

139

CHAPTER 14

MANAGING DISTRIBUTION: HOW TO DEVELOP

A CORPORATE LEGAL COMPLIANCE PROGRAM

Every business in this country that markets its products and services in any manner faces

potential exposure under the antitrust laws and other laws and regulations. That risk is

heightened if the business people involved, from the chief executive to the salesman on the

street, do not know what types of conduct the laws may prohibit. Thus, from a legal standpoint,

managing the distribution aspects of any business involves training client personnel, at every

level from top management to street salesmen, to recognize legal issues and minimize legal risks.

The problem may be particularly acute when a foreign business is involved, and assumptions

about antitrust, franchise, labor and securities laws in a home jurisdiction may be quite different

from those of U.S. law.

For that reason, one of the corporate or outside counsel’s important roles is the development

of a legal compliance program that will:

xinform company personnel how to perform their jobs without creating antitrust

and other legal problems

xassist them in resolving legal questions as they arise, and

xmonitor compliance so that the business as a whole is not placed in jeopardy by

the misconduct or carelessness of a single employee.

This chapter is intended to assist counsel in developing such a program. It addresses the

various areas that should be included in a compliance program, but is not intended as a complete

survey of relevant applicable law. The focus of the chapter is on federal antitrust law, but

remember that most states also have their own antitrust laws. Moreover, in the global

marketplace, antitrust and competition laws of other nations should be considered as well. In

addition, this article deals only with issues of day-to-day relevance to a distribution business, and

does not address other topics, such as mergers and acquisitions.

A. Preparing to Develop a Compliance Program

Counsel’s first task is to persuade top management that a compliance program is not only

necessary, but desirable. No compliance program can succeed without solid management

support. Given corporate scandals and mandated responsibility imposed by such laws as the

Sarbanes-Oxley Act of 2002, corporate CEOs are currently relatively receptive to compliance

issues. But if company personnel think management is “winking” when the program is

presented, or is just going through the motions to satisfy the lawyers, there is no chance for

success. Unless the sales force, for example, understands that management is committed to

antitrust compliance—that it will consider performance in compliance training as part of annual

employee evaluations, will condition promotions, bonuses and salary increases on successful

140 Antitrust Compliance: Perspectives and Resources

completion of training, and will impose sanctions, up to and including dismissal, for violations of

company policy in this area ̛ they will abide by the antitrust laws only so long as their sales are

not impaired. The same principle applies equally to all other operating areas of your company.

B. Arguments for a Compliance Program

The first question counsel must be able to answer is fundamental: Why should management

support a program?

1. Criminal Sanctions

Jail terms are not uncommon for egregious antitrust violations involving agreements among

competitors, and individuals convicted may be subjected to sentences of up to ten years.

Maximum fines were increased in 2004 to $1 million for individuals and $100 million for

corporations.1 Larger fines are possible if twice the gain from the violation or twice the loss to

the injured party exceed $100 million.2 The Antitrust Division of the Department of Justice

(DOJ) has, as of February 2010, fined many companies $10 million or more. Some of these

fines were for hundreds of millions of dollars per company.3

2. The Cost of Litigation

Even “run of the mill” litigation today is, unfortunately, an extremely expensive process.

Antitrust litigation is even more so. The trial of even a simple dealer termination can cost

hundreds of thousands of dollars in legal bills if the dealer can make a colorable claim under

federal or state antitrust laws, franchise and dealer protection laws, or various common law

theories of wrongful termination, and then demand detailed nationwide discovery to show that

his treatment diverged from the supplier’s normal practices. That does not include the

considerable loss of employee and executive time that must be devoted to defending a suit and

the extraordinary burden of discovery (including disclosure of what clients may consider

“personal” files), nor does it include damages if the case is lost.

3. Treble Damages

A victorious antitrust plaintiff is entitled to treble damages and costs, including reasonable

attorneys’ fees. The exposure in an antitrust action thus can be extremely high. If the

termination of a distributor causes him to go out of business, or if a competitor is driven out of

1. Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No. 108-237, 118 Stat.

661 (codified at 15 U.S.C. §§ 1, 2, 3 and 16) (“ACPERA”); Antitrust Amendments Act of 1990,

Pub. L. No. 101-588, 104 Stat 2880 (codified at 15 U.S.C. § 1).

2. U.S. SENTENCING GUIDELINES MANUAL, Part R (2004).

3. Antitrust Div., U.S. Dep’t of Justice, Sherman Act Violations Yielding a Corporate Fine of $10

Million or More, available at http://www.justice.gov/atr/public/criminal/sherman10.htm.