Many founders assume that U.S. antitrust laws only concern entrenched firms, industry cartels or potential monopolists. But section 1 of the Sherman Act, along with related federal and state laws, criminalizes a wide range of anticompetitive conduct. Certain behaviors are regarded as “per se” illegal acts under the antitrust laws, regardless of any business justification behind them or market-share figures. These per se violations may be especially challenging for starts-ups, where employees are juggling multiple roles and compliance training remains under development. The following points describe the classic per se violations that employees must avoid when interacting with competitors:
- Price-Fixing: The paradigm antitrust violation, competitors may not agree on any price term – including any formal or informal coordination on discounts, rebates or surcharges. Similarly, any agreement on quantity or output is prohibited, given the relationship between supply and price.
- Business Allocations: Competitors may not agree to share or divide markets, segments, territories or customers/users. For example, you cannot agree to not enter one product category in exchange for a competitor doing the same in another product category.
- Boycotts: Competitors cannot agree to refuse to deal with customers or suppliers in order to exclude a rival from accessing the market.
- Bid-Rigging: Competitors may not agree to decline, take turns, or otherwise coordinate bidding to customers or suppliers.
The above conduct is automatically unlawful. The agreement or conduct alone is sufficient to violate the antitrust laws, without any need for an impact to the market. To avoid the appearance of improper coordination, companies should caution employees to avoid communications with competitors on prices, costs, customers/users, markets, or sales levels, particularly when attending trade shows or other industry forums. In the event that a competitor initiates a prohibited discussion, the employee should excuse himself from the conversation and report the incident to an appropriate manager.
Start-ups that make employees aware of these antitrust pitfalls are better prepared to adopt and adhere to more robust compliance programs as they grow. If competitors violate these per se rules to maintain their dominant position, a start-up may have legal standing to assert a private lawsuit and recover damages.