Antitrust: 2014 CreditScape, Western Region Credit Conference Seminar Slide Deck

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Creim Macias Koenig & Frey LLP
AANNTTIITTRRUUSSTT
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THE MINE FIELD EVERY TRADE SUPPLIER MUST
CROSS
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 Richard Macias is a partner with the law firm of
Creim Macias Koenig & Frey LLP. The firm
specializes in creditors’ rights.
 Mr. Macias represents trade suppliers,
manufacturers and financial institutions in
litigation involving contract enforcement
actions, antitrust, bankruptcy, business
transactions, bad faith claims, collections and
dealer terminations.
 Mr. Macias graduated from Harvard Law School
in 1975.
 Prior to entering private practice, he served for
three years as a criminal prosecutor in the
office of the Los Angeles City Attorney and later
was appointed to be Special Counsel to the City
Attorney. He also was an Associate Professor
of Law at Loyola Law School in Los Angeles,
where he taught courses in litigation procedure,
trial practice and negotiation skills.
 He has written numerous articles on topics of
interest to secured and unsecured creditors.
About the Speaker

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First……
some background
about antitrust law.

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THE GOALS OF ANTITRUST
LAW
“The purposes of the antitrust laws are to
curb conduct in business transactions
which restrict production, raise prices or
otherwise control the market to the
detriment of purchasers and consumers of
goods and services.”
Apex Hosiery v. Leader, 310 U.S. 469 (1940)

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Sen. John Sherman (R-Ohio) Pres. Theo. Roosevelt (R-NY) Pres. Wm. Taft (R-Ohio)

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Purposes of Antitrust Law
 Maintaining a free market through “fair” business
practices and competition.
 Primary objective is protecting consumers
 Preserves competition not the competitors.

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So what does this all mean to
a credit manager in the 21st
century?
Does anyone in the cyber era
care about laws from the
bricks and mortar century
anymore?

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Circumstances in Which Trade Suppliers May
Encounter Antitrust Claims
1. Counter-claim to collection action
2. Termination of a dealer
3. Refusal to set up a dealer
4. Business practices favoring one dealer over another
5. Industry business arrangements and trade
groups (including exchange of information)
6. Counterclaim in patent, copyright or trademark
infringement action
7. GOVERNMENT INVESTIGATIONS

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SPECIAL BREACH OF
CONTRACT PROBLEMS-
(On Top of the Antitrust Issues)
 Refusal to deal
 Termination of existing dealer
 Unfair allocation of production
 Disparagement of business or
character

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Sources of Antitrust Laws
• Federal Statutes
• State Statutes (State laws
generally mirror federal but are
usually described as “unfair
competition” laws.)

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SHERMAN ACT
1. Conspiracies or Agreements
Between Competitors That
Restrain Trade
2. Monopolization or Attempted
Monopolization

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Sherman Act
1. CONSPIRACIES OR AGREEMENTS
RESTRAINING TRADE
a. Arrangements between competitors
are still the major no-no.
b. Some of the old rules on pricing issues
are in a very uncertain place.

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RETHINKING OF PRICING ISSUES UNDER THE
SHERMAN ACT??
 In 2007, the Supreme Court decided a case in which they
held that minimum advertised resale price policies are not
an automatic violation (per se) of the Sherman Act. The
ruling was in the case Leegin Creative Leather Products v.
Kay’s Kloset.
 The court decided that in the future such restrictions should
be reviewed for antitrust scrutiny under a "rule of reason"
test. To be blunt, the Court provided almost no guidance on
how to apply this Rule of Reason analysis to pricing issues.
Justice Kennedy wrote, for example, "Vertical agreements
establishing minimum resale prices can have either pro-competitive
or anticompetitive effects, depending upon the
circumstances in which they are formed."

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RETHINKING OF PRICING ISSUES UNDER THE SHERMAN ACT ??
 The real world difficulty created by this vague idea
of a “rule of reason” is simply that it lacks any
defining standards that lawyers and clients can
apply to every day situations.
 Here is a kicker. There may be some state laws
that would STILL MAKE THIS TYPE OF PRICING
ILLEGAL under state law. The circumstances
would be limited to intrastate sales, as opposed to
interstate commerce.
 Bottom line, no one is really sure, so caution
remains the key to an overall approach.

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Developments in Credit Card Law
(Yes Virginia, there really is a Sherman Act.)
Justice Department Consent Decree with
Visa and Master Card

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http://www.justice.gov/opa/pr/2010/October/10-at-1115.html

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Banks slashed small business lending by $43 billion
http://money.cnn.com/2011/02/11/smallbusiness/small_business_lending_drop/index.htm

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Sherman Act
2. MONOPOLIZATION OR ATTEMPTED MONOPOLIZATION
a. Single actor, usually with large market share
b. Actions designed to maintain or acquire "monopoly
power" -- predatory (below cost) pricing, refusal of
access to essential facility, control over essential IP.

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Clayton Act
 Exclusive Dealing Agreements,
 Tying Arrangements Unreasonably
Restraining Trade,
 Mergers That Will Reduce Competition

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Robinson-Patman Act
1. Price Discrimination- Supplier may not
discriminate in price or credit terms
between dealers:
1. That buy the same product
2. Compete in the same market
3. Compete at the same level in the
market

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Robinson-Patman Act
2.Defenses
a. Cost justification -- usually doesn't work
b. Changing condition of goods
c. Meeting competition
(1) Need to verify and document
competitor's lower price -- don't contact
competitor
(2) Meet but don't beat
(3) Duration
(4) Can be used to keep existing
business or to get new business
(5) THE ALIBI LETTER

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Robinson-Patman Act
3. Other issues
a. Functional "availability" -- functional discounts,
advertising allowances, volume discounts -- price
must be "practically" available to all competing
customers
b. “Brokerage” provision
c. Promotional allowances and services provisions
d. “Knowingly Inducing or Receiving”- Potential for
Buyer liability

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4. Who May Sue for antitrust claims?
a. Government -- injunction, fines.
(Both the FTC and the DOJ have committed to
increased antitrust enforcement.)
b. Private parties -- injunction,
triple damages, attorneys' fees and
costs.

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WARNING !!!
The EMAIL Of The Species
Is Deadlier Than The MAIL.
 Most experts estimate that more than 90%
of all legal evidence now resides in
computer systems, rather than on paper.

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Trade Organizations
The United States Supreme Court has ruled that a trade
organization may disseminate information concerning
credit risks on specific accounts as long as there is no
restriction on the judgment of the COMPANY member
concerning extension of credit.
Special Concerns:
a. Exchange of non-objective information or rumors.
b. Concerted group action with regard to changes in pricing or
terms.
c. Informal "rump sessions" outside of the regular meeting of the
trade organization.
d. Lack of structure, procedures or minutes at a meeting.

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Trade
Organizations
http://www.ftc.gov/opa/2009/03/namm.shtm

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THE RECURRING
QUESTION OF
THE IMPACT OF
ANTITRUST LAW
ON
PRICE & CREDIT
DECISIONS AND
BUSINESS
POLICIES

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Creim Macias & Koenig LLP
Cr edit Gr oups And Terms
My company sells to Chapseven, Inc., on a COD
basis. In our group meeting this week, most of the
members reported that Chapseven is behind on
payments. One of the members, that I know from
years of experience is Weebenscrued Corp.,
reported that Chapseven is 90 days behind.
Weebenscrued reported they sell on terms of “2%-
45/net 60.”
Later that day during lunch the credit manager
from Weebenscrued was talking with everyone at
the table and said, “With everything I heard today,
I am thinking that I will try to get Chapseven
down to 15 day terms of even COD.

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The Types of I nf ormat ion Exchanged by
Cr edit Gr oups
One of our sales people heard that Marvin
McNuggets, the president Chapseven, has a
drug problem and is being investigated by the
IRS for tax fraud.
I know I can’t discuss this information at
the next group meeting but what if I wait until
after the meeting and tell everyone at the
cocktail party?

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Gr oup Act ion
Our V.P. of Sales recently met with Norman
Silverspoon, the President of Flako, Inc., one of our
accounts. Norman asked her for special pricing
and she refused. Norman then called her a
sniveling polyester wimp.
The V.P. got real mad and instructed us to
cut off Norman's credit line next month. She also
wants me to tell everyone at the next credit group
meeting that we have cut off Flako.
What should I say to Polly Esther?

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Collection Issues and Litigation Due Diligence
We sell a very unique product, a digital “gluten free”
home vodka maker. We are considering a collection lawsuit
against a past due account, Vegan B’ Us, Inc. I recently met
with the CEO of Vegan. He hinted that one of the reasons
he was not paying was because we had given more
favorable pricing to one of his competitors that also buys
from us and that our collection activity was really intended
to get his company terminated as a distributor in retaliation
for his internet sales discount pricing policies.
Do we need to worry about these allegation in
deciding whether to sue Vegan?

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New Markets
Our company has a customer base
throughout the West Coast. In order to get
a foothold in the northeast, our sales
department wants to give an extra 5%
discount for any accounts in the southeast.
Won't that be a violation of the Robinson-
Patman laws?

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Meet ing Compet it ion
Our best account, Profits Plus Corp., is
threatening to drop our product line
because one of our competitors with
similar products has reduced its prices to
5% less than our prices.
We don't want to lose Profits Plus as
an account, but we don't want to break the
law by giving a special deal to Profits Plus.
Is there anything we can do legally to
give special pricing just to Profits Plus?

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Shortening Terms
The financial statements of one of our
major accounts, Wonder Bros., LLC, are
looking worse and worse. We normally sell
on extended terms but I don't feel
comfortable continuing to sell to Wonder
Bros. on extended terms.
I'd like to change our terms to 10 days.
I'm concerned that this may be a
Robinson-Patman violation.

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Volume Discount Program
Our company has been working on a new marketing
plan to capture the big volume accounts. The plan involves
huge pricing discounts at the highest volume of sales, 1
million units a month. Only one of our current customers
meets this sales level.
Our smaller accounts could be upset by this new
super volume discount. The plan is to only make this
program known to our largest customers and prospects
since they are the only ones who could buy enough to
qualify.
I am concerned whether it is advisable to have private
volume bonuses, and whether our smaller customers would
have some sort of antitrust claim.

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Special Terms Not Involving Pricing
My company's V.P of Sales learned at a seminar about
potential Robinson-Patman problems if we sell our product
at different prices to competing customers in the same
market area. To get around this problem, the V.P. proposes
that we make special advertising credits and more
preferable payment terms available to certain special
accounts to replace the preferential pricing program.
I am concerned that this may still pose a Robinson-
Patman antitrust problem.

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RICHARD C. MACIAS
633 West Fifth Street, 51st Floor
Los Angeles, California 90071
Tel: 213-614-1944
Fax: 213-614-1961
Email: RMacias@cmkllp.com
Web:www.cmkllp.com
© 2014 Richard C. Macias. All rights reserved.

Antitrust: 2014 CreditScape, Western Region Credit Conference Seminar Slide Deck

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Antitrust: 2014 CreditScape, Western Region Credit Conference Seminar Slide Deck