For most trade associations and professional societies, the coronavirus pandemic has resulted in major reductions in members' revenues. With retail stores closed and professional practices dependent on virtual meetings between professionals and clients/patients, nonessential industries and professions experienced devastating decreases in revenues.
Now that the economy is reopening, members of trade associations and professional societies are asking how they can, individually and collectively, maximize opportunities to regenerate revenue. Trade associations and professional societies are being asked to provide information on raw materials availability, government support programs, coronavirus-related safety issues, insurance questions, employee relations, telecommuting as a way of life, and more.
The issues raised are mostly unique to the profession or industry. Some of the discussions are private, while others — such as debates involving if and when to open professional sports leagues — are reported on a daily basis by the media. These information exchanges and discussions are of great assistance in propelling our economy forward but also pose an antitrust risk.
If the information exchanges or discussions result in an agreement, direct or indirect, which unreasonably restrains trade, you have a potential antitrust violation. If the agreement involves price-fixing, customer allocation, bid-rigging, territorial allocation or certain types of boycotts, all potential per se antitrust violations, those who participate in the agreement — including trade association executives who facilitate the discussions — may be charged with a felony, which carries a statutory maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than $1 million.
Trade associations and professional societies should have counsel review the agendas of all meetings that involve discussions of sensitive antitrust issues. The Federal Trade Commission and the U.S. Department of Justice have offered to provided trade associations and professional societies with expedited advisory opinions or business review letters as to whether contemplated action will be challenged by the government as an antitrust violation.
The Antitrust Division of the DOJ and the FTC recognized that the unique challenges created by the coronavirus pandemic would require significant collaboration by competitors. In March, the DOJ and the FTC published a joint antitrust statement on COVID-19.[1] In this statement, which was revised on May 1, the agencies agreed to respond to coronavirus-related requests for advisory opinions (FTC) and business review letters (DOJ) on an expedited basis. The agencies stated that they would "aim" to respond to COVID-19-related requests within seven calendar days of receiving all necessary information.
The statement recognizes that the agencies have historically accepted that collaboration among competitors may be pro-competitive and sharing technical know-how, rather than company-specific data about prices, wages, outputs or costs, may be necessary to achieve the pro-competitive benefits of certain collaborations.
At the same time, the statement cautioned that both the FTC and the DOJ will continue to challenge civil violations of the antitrust laws, such as agreements to restrain competition through increased prices, lower wages, decreased output or reduced quality as well as efforts by monopolists to use their market power to engage in exclusionary conduct. Further, the DOJ restated its commitment to prosecute criminal antitrust violations, which typically are agreements or conspiracies between individuals or businesses to fix prices or wages, rig bids, or allocate markets.
The statement specifically referred to the Noerr-Pennington doctrine[2] holding that the antitrust laws generally permit private lobbying addressed to the use of federal emergency authority including private industry meetings with the federal government to discuss strategies for responding to COVID-19 in so far as those activities comprise mere solicitation of government action with respect to the passage and enforcement of laws.
Within several weeks after publication of the statement, the DOJ published three business review letters[3] utilizing the expedited procedures.
On April 4, the DOJ issued a business review letter to a group of distributors of both personal protective equipment intended to help protect first responders and other members of the medical community against coronavirus-related infections and medications to treat COVID-19 patients. The request was focused on and limited to facilitating the government's efforts to guide PPE and medications to the places where they were most needed.
The requesting parties proposed to collaborate with, and at the direction of, the Federal Emergency Management Agency to expedite and increase manufacturing, sourcing and distribution of PPE and COVID-19 medication.
Based on the existence of a national health care emergency and the fact that the requesting parties' collaborative activities were at the direction of, and in the presence of, FEMA, the U.S. Department of Health and Human Services, and other government agencies and their agents, the DOJ agreed not to oppose the joint collaboration. Further, the DOJ agreed that there could be some collaborative activity, subject to specific restrictions, where no U.S. government representatives were participating.
Associations can use the concepts set forth in this letter to support arguments that, under certain circumstances, they should participate with government agencies to develop industrywide plans that address supply train issues, regulate output, and direct products or services to specific market sectors.
Such a program may require association members to collaborate without the presence of government representatives in order to develop output and distribution recommendations for the government. Recommendations should not include specific price recommendations or indications that unless the government agrees to certain prices, the members of the association will not sell products or services.
On April 20, the DOJ issued a business review letter to Amerisource Bergan Corporation, a U.S. distributor of medications and other health care products. Amerisource proposed to collaborate with FEMA and other federal agencies to identify global supply opportunities, ensure product quality and facilitate product distribution of medications to treat COVID-19 under much of the same framework as applied to the PPE manufacturers as described in the April 4 letter referred to above.
In this case, Amerisource also would be acting as a distributor of medications from the U.S. government stockpile and distributing medications in accord with government directives. Amerisource's collaborative activities would continue only as long as such efforts are necessary to meet the healthcare crisis and would be limited to Coronavirus related efforts.
The activities involved would be at the direction of government agencies but some discussions might occur when no government representatives were present. Subject to specific restrictions, the DOJ agreed not to oppose Amerisource's proposed activities.
The concepts set forth in this letter support recommendations that the government use the association to serve as a subcontractor to develop and implement programs designed to provide consumer benefits that would not be available without such programs.
For example, the association could make general recommendations to the government as to what factors must be considered in pricing a product or service and how the product or service should be offered to prospective buyers.
After the government develops a request for proposal, the association could distribute the RFP to its members and others, and educate members on the proper procedure to follow in responding to the RFP. The association should not accept any information from members regarding competitive sensitive issues such as prices a member will offer to the government in response to the RFP.
On May 15, the DOJ issued a business review letter to the National Pork Producers Council, a national trade association representing pork producers. According to the facts stated in the letter, farmers raise hogs and sell hogs either by contract or on the spot market to producers of pork products. The market is time-sensitive in that the producers have standardized equipment that can only process hogs of a certain size and weight. Hogs delivered to producers are processed almost immediately.
Due to coronavirus-related issues, many producers had to close or limit production at their facilities. As a result, farmers were left with hundreds of thousands of hogs that could not be processed in a timely manner and grew to a size where they could no longer be processed in the pork producers' facilities.
Since there was no market for these hogs, the U.S. Department of Agriculture developed a program to euthanize the hogs. Since many farmers did not have the capability to euthanize large numbers of hogs, some NPPC members offered to help farmers by euthanizing hogs for them. The NPPC met with the USDA regarding the USDA program and had been asked by USDA to work with the agency so that the hogs could be euthanized in a safe, legal and environmentally acceptable manner.
Again, recognizing that coronavirus-related unique health and safety issues were involved, the DOJ agreed, with specific restrictions, not to oppose the NPPC program. Normally, any agreements among competitors to restrict output would be considered an antitrust violation and viewed as an attempt by producers to maintain higher prices by limiting the amount of product on the market.
This letter presents a situation where, as a direct result of the coronavirus pandemic, the normal supply train was disrupted in a manner that created significant health and environmental issues. The analysis in the letter can be used by associations to support competitor collaboration programs relating to unique output issues that require industrywide action to avoid health and environmental issues.
The statement and the three business review letters establish some parameters within which trade associations and professional societies can work to assist members in dealing with coronavirus-related issues.
It appears that the FTC and the DOJ recognize that, in order to work with government agencies and address these issues, the health and welfare of our nation requires that a broader perspective be applied to historical antitrust analysis. At the same time, the FTC and the DOJ are clear that associations and professional societies cannot hide behind the coronavirus pandemic in an attempt to justify anti-competitive conduct.
The cost of violating the antitrust laws is compounded by the fact that plaintiffs injured by antitrust violations can file class actions. If successful, a class of plaintiffs will be entitled to recover actual damages multiplied by three, plus reasonable attorney fees and costs of litigation.
If an association executive or member feels that any subjects scheduled for discussion at an association meeting or raised during such a discussion present antitrust issues, counsel should be consulted before the discussion is held.
[1] http://www.justice.gov/atr/joint-antitrust-statement-regarding-covid-19.
[2] Eastern R. Conf. v. Noerr Motors, 365 U.S. 127,138 (1961).
[3] http://www.justice.gov/atr/business-review-letters-and-request-letters.
