Tackling Common Questions And Issues
| Pages | 49-96 |
CHAPTER IV
TACKLING COMMON QUESTIONS AND ISSUES
This chapter addresses frequently raised questions about issues that
arise in the Section 8 context.
A. What Is a “Competitor”?
Section 8 of the Clayton Act prohibits any person from serving as a
director and officer “in any two corporations . . . that are . . . by virtue of
their business and location of operation, competitors, so that the
elimination of competition by agreement between them would constitute
a violation of any of the antitrust laws.”1There has been only limited
case law discussing how to determine whether two corporations are, in
fact, “competitors.” As discussed below, courts generally have relied on
the market definition analysis used in Clayton Act Section 7 cases (and
Sherman Act cases), largely preferring the qualitative factors articulated
in Brown Shoe Co. v. United States2to identify whether two corporations
are competitors.
Two cases have analyzed, and rejected, the interpretation that an
interlock could violate Section 8 only if a hypothetical merger of the two
corporations would be illegal under Section 7. In United States v. Sears,
Roebuck & Co.,3the DOJ alleged that an individual’s holding of a board
seat at both Sears and B.F. Goodrich violated Section 8. Both companies
admitted competing in the sale of various home appliances, home
electronics, automotive supplies, rubber products, sporting goods, and
toys in various geographic areas in the United States.4They argued,
however, that this was insufficient, contending that a violation could be
found only where the “combined position” of the two corporations was
such that there was “a reasonable probability that they could together
substantially restrain trade or create a monopoly.”5The court recognized
this as an attempt to require “appl[ication of] the merger test . . . in § 7 of
1. 15 U.S.C. § 19(a)(1).
2. 370 U.S. 294, 324 (1962).
3. 111 F. Supp. 614 (S.D.N.Y. 1953).
4. Id. at 615.
5. Id. at 616.
50 Interlocking Directorates: Handbook on Section 8 of the Clayton Act
the Clayton Act.”6The DOJ argued that the reference in Section 8 to
“any of the antitrust laws” was not so limited and instead defined as
competitors those corporations that would be prohibited by the antitrust
laws from entering into agreements to fix prices or divide markets.7The
court rejected the defendants’ attempt to apply the framework of
Section 7 analysis to Section 8 cases, finding that such a standard would
require inquiry into “the intent and motivation” of a “hypothetical
merger,” which was not possible and would thus “result in complete
nullification of the law . . . in all but the rawest situation[s].”8According
to the court, the approach urged by the DOJ “permit[ted] the prohibitory
features of § 8 to be administered with the full scope which the
legislators must have contemplated.”9
Two decades later, in Protectoseal Co. v. Barancik,10 the Seventh
Circuit rejected a similar attempt by the defendants to limit the definition
of competitor.Defendant Barancik, a director and owner of a company
that sold products in competition with Protectoseal, was elected a
director of Protectoseal, but argued that his dual board roles could not
violate Section 8 unless the plaintiff could show that a merger between
the two companies would violate Section 7.11 The court rejected this
argument, indicating that Section 8 “establishes rather simple objective
criteria for judging the legality of an interlock,” one of which was that
firms whose entry into an agreement that would violate any of the
antitrust laws were “covered” companies.12 The court noted its disbelief
that Congress intended “the legality of an interlock to depend on the kind
of complex evidence that may be required in a protracted case arising
under § 7.”13 Importantly, the court noted that the statutory phrase
“between them” implied that it was unnecessary to do “a market-wide
analysis of competition” to find a violation.14
6. Id.
7. Id.
8. Id. at 617.
9. Id.
10. 484 F.2d 585 (7th Cir. 1973).
11. Id. at 588.
12. Id. at 589.
13. Id.
14. Id.
Tackling Common Questions And Issues 51
In United States v. Crocker National Corp.,15 however, the district
court rejected both the Sears and Protectoseal courts’ views that firms
could be adjudged competitors if they would be prohibited from entering
into an “agreement” that would violate “any of the antitrust laws,”
because such a reading would bring vertical relationships into the
statutory prohibitions.16 According to the court, the “‘so that’
clause . . . is . . . not a definition of the term competitors” but simply
supports “the establishment of a per se rule that interlocking directorates
among competing corporations . . . are illegal” without requiring inquiry
into whether any competition restrained “was substantial or de
minimis.”17 Whether corporations were competitors was to be
determined in accordance with “the traditional tests of competition”:
“common sales in the same product and geographic market” as suggested
by the statutory phrase “by virtue of their business and location of
operation.’”18
American Bakeries Co. v. Gourmet Bakers, Inc.19 is the first
Section 8 case in which a court suggested that some specific metrics,
(9th Cir. 1981), rev’d sub nom. Bankamerica Corp. v. United States, 462
U.S. 122 (1983).
16. Id. at 703. After the district court was reversed by the Ninth Circuit, the
Supreme Court upheld the district court’s holding that Section 8 did not
prohibit interlocks between a bank and an insurance company. 462 U.S.
17. Crocker, 422 F. Supp. at 703.
18. Id. at 703-04.
contest, in which plaintiff American Bakeries was deter mined to resist the
placement of Gourmet Bakers’ chief executi ve officer on its board of
directors, in part through an allegation that t he placement would violate
Section 8’s prohibition on interlockin g directors. American Bakeries
supplied various fresh bakery products to various custome rs in the New
York metropolitan area, including retail stores, institutional clients, and
restaurants. Go urmet Bakers warehoused frozen and dry bakery goods
and ingredients and distributed them to retail stores (and one lar ge
restaurant chain) in the same geographic area, but neither manufactured
nor processed bakery products. Id. at 978. The only contested issue was
whether the two firms were competitors. Id. at 980. While the parties had
several common retail chain customers, the court rejected the plaintiff’s
claim that because “the raw ingredients delivered b y Gourmet [were]
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