A trade association such as the Gas Processors Association ("GPA") is an organization of competitors. As such, there are obvious inherent antitrust implications in its operations and those of its committees. Committees are continually counseled and reminded to avoid any discussions or actions which have the remotest antitrust implications. The GPA Legal Advisory Committee or its individual members (hereinafter referred to as "Legal Counsel") are available as counsel to other committees. It is the responsibility of the committee or subcommittee chairman to request Legal Counsel whenever needed.
To assist GPA committees and their members, the Board of Directors has adopted antitrust guidelines, developed by the Legal Advisory Committee, which are summarized below. These guidelines are not intended to substitute for the legal advise committee members may receive from their own company's Legal Counsel. Nor are they intended to be a comprehensive review of all antitrust-related issues that may arise.
Trade associations perform many useful and lawful functions, but they present inherent antitrust dangers because of their nature as organizations of competing concerns. The purpose of these guidelines is to assist the GPA, its employees and members not only to avoid violations of antitrust law, but to prevent any appearance of violation. Each committee or section head or any person conducting or holding a GPA meeting of any kind, should be made aware of the guidelines and furnished a copy thereof at least once a year.
Trade associations are subject to strict scrutiny under both federal and state antitrust laws. Associations are particularly vulnerable to attacks by federal and state antitrust enforcers, because an association is, by its nature, a group of competitors joined together for a common business purpose.
A conviction for violating an antitrust law may result in stiff fines for the association and its members, jail sentences for individuals who participated in the violation, a consent decree under which the association must operate, or a court order disbanding the association.
The most important antitrust statutes relating to association activities are Section 1 of the Sherman Act and Section 5 of the Federal Trade Commission Act. Section 1 of the Sherman Act prohibits "contracts, combinations, or conspiracies . . . in restraint of trade." Since trade associations are by definition "combinations", they are particularly vulnerable.
The Sherman Act prohibits any understanding affecting the price of a product even if that understanding will benefit consumers.
Association members must also remember that the Sherman Act is a criminal conspiracy statute. Even if you are not an active participant but simply attend a meeting where other members of the association engage in an illegal discussion concerning price-fixing, you may still be held criminally responsible, even though you said nothing during the discussion. Mere attendance at such a meeting may be sufficient to imply acquiescence in the discussion and thereby make the individual liable to as great a penalty as those who actively agreed to fix prices.
Section 5 of the Federal Trade Commission Act prohibits "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce." Unlike the Sherman Act, the Federal Trade Commission Act reaches anti-competitive acts committed by single persons or companies, whether or not there is any agreement or "combination"; like the Sherman Act, it also covers joint actions.
The FTC has broad power to determine what constitutes an unfair method of competition or an unfair or deceptive act or practice under any given circumstances.
Federal antitrust laws may be enforced against associations, their members, and staff both by government officials and by private parties through treble damage actions. In both cases, penalties are severe.
An individual convicted of a criminal violation of the Sherman Act may be fined as much as $1,000,000 and imprisoned for up to ten years. A corporation convicted of such a criminal offense may be fined as much as $100,000,000. However, under alternative sentencing guidelines a higher fine may result if the Court imposes a fine of twice the amount of the loss caused to victims or twice the gain to the competitors.
Violation of the Federal Trade Commission Act can result in issuance of a cease and desist order, which will place extensive governmental restraints on the activities of the association and its members. Failure to obey such an order can result in penalties of as much as $10,000 for each daily violation.
In addition to governmental prosecution for a criminal or civil violation, the association can face private action for treble damages brought by competitors or consumers. A finding of violation of an antitrust law in such a private action will result in payment by the convicted party of treble damages to the injured plaintiff.
Section 1 of the Sherman Act is construed as outlawing only those arrangements which "unduly" or "unreasonably" restrain interstate or foreign trade or commerce. Normally, an arrangement is tested by its purpose and effect to determine whether the restraint is "undue" or "unreasonable." However, certain arrangements and activities are conclusively presumed to be "unreasonable" in and of themselves and deemed to be indefensible under all circumstances and, therefore, illegal. These "per se" or automatic violations include:
1. Price Fixing. Experience shows that the price-fixing prohibitions of the Sherman Act are most likely to be violated and the government is most likely to strictly enforce. If price-fixing is established, the association and its members may not raise the defense that the prices set are reasonable or that the ends sought through the price-fixing behavior are worthy.
Prices must not be discussed before, at, or after GPA meetings. "Price fixing" encompasses not only agreements or combinations with competitors on a selling price, but it may also include, for example, agreements to buy up surplus goods, to adhere to a formula for determining prices, to standardize discounts, to control raw material prices, to control or standardize the price of services, and any other agreement or combination which has the net result of affecting the prices of goods or services. Furthermore, discussion of even peripheral matters relating to price, such as credit policies and terms of sale should also be avoided. It is recognized that convention speakers may include reference to prices, pricing or price trends or levels as part of any address on another subject; however, speakers at the convention should not be asked to speak on price. Discussions or presentations regarding pricing policies must also be avoided.
2. Agreement to Divide Customers or Allocate Territories. An agreement or understanding among members of an association to divide customers is, in and of itself, a criminal act. Even an informal agreement whereby one member agrees to stay our of another's territory will constitute a violation of the antitrust laws.
3. Agreement to Limit Supply. Any agreement or understanding between competitors to restrict the volume of goods they will produce or make available for sale is illegal.
4. Boycotts. Any agreement or understanding between suppliers and/or customers that they will not sell to, purchase from or deal with particular outsiders is illegal.
5. Tying Arrangements. Certain agreements imposed by a seller who enjoys a substantial market position that its sale of one product compels the buyer also to purchase a different (or tied) product may be illegal.
The Supreme Court has held that the Sherman Antitrust Act is inapplicable to bona fide group efforts to influence legislative action. Subsequent lower court decision have extended this privilege (known as the Noerr-Pennington doctrine) to include influencing other governmental agencies besides legislative bodies, but have left its bounds somewhat uncertain.
In general, one has a right to meet and collect necessary information and to make joint presentations with respect to governmental activities of common interest. This is conduct which is protected to a much larger degree than are other forms of joint activity. GPA and its Legislative and Regulatory Affairs Committee should confine its activities to matters relating to actual or prospective governmental policy-making activities, i.e., legislative and regulatory rulemaking, unless other activities are cleared by Legal Counsel.
It is frequently desirable to collect information which is important to the subject of regulation, but which nevertheless may be of value to one competitor as opposed to another. For example, an inquiry might be made in dealing with a regulatory body as to how some rule, law or regulation would affect each company. When it is necessary to collect information of this kind on an industry wide basis in order to meet effectively a regulatory proposal or demand, the method of doing so should be guided by Legal Counsel. For example the GPA may want to use a consultant who obtains and organizes the particulars, and the individual companies do not, or it may be desirable that the companies communicate separately with a regulatory agency. Information of competitive value, particularly including information on the effect of regulation on individual companies, should not be discussed or exchanged.
An association that develops voluntary industry standards, specifications, research and statistics may face antitrust problems if such activities favor some competitors and discriminate against others. While major activities of this trade association include standards, specifications, research and statistics, such activities in and of themselves are not unlawful. However the following guidelines should be adhered to.
1. Research projects should be determined by the consent of a large broad-based range of membership with due consideration given to general industry benefit from the project.
2. With respect to statistical activities, the principal antitrust risks are that the government or a court might find that such activities are part of a plan to fix or "stabilize" prices, administer markets, limit production, or confer a competitive advantage upon participants over others who are excluded from access to the activities. Therefore, to avoid antitrust involvement:
a. Reports should not identify the statistics of individual companies. This will help to avoid charges that production quotas are being suggested, or pressures are being brought on price cutters.
b. Discussions of company or regional statistics at meetings should be avoided or limited to general terms. Prices, costs, or other competitive or sensitive matters must not be discussed.
c. GPA should not assess penalties for failure of members to furnish data, nor should it use compulsory means, such as inspection of members' books, to assure accuracy of reports.
d. Particular sellers and customers should not be identified or be capable of identification. Therefore the company data or averages submitted should be from groups large enough so that no individual company can determine another company's data by "backing out" its own data.
e. There should be no editorial comment or analyses of the data if it relates to prices, output or costs. Such activities might be construed as exhortations to raise prices or limit production.
f. There must be no limitation upon the freedom of a seller to change his business policy or procedure at any time and without prior notice to the Association, even though the purpose of a proposed limitation is to assure that data reported is accurate and not misleading.
g. The data disseminated should be made readily available upon reasonable terms to both GPA members and non-members and to both sellers and buyers.
h. While a fee may be required for non-members, it must be reasonably related to the cost of gathering and disseminating the data.
3. GPA frequently initiates programs to promulgate standards for industry tests, measurements, criteria for quality or to cooperate with private testing organizations or the Bureau of Standards of the Department of Commerce in such undertakings. Product standardization programs can be pro-competitive. They may be pro-competitive and beneficial in such ways as designating size, grade and quality standards so that any purchaser may know, for example, that a "size 15 collar" on a shirt will be the same size regardless of brand, or that a 2" x 4" shall be a minimum of a certain size, etc. Standardization may also eliminate hazardous products. On the other hand, standardization programs may be anti-competitive if their purpose or effect is to eliminate competition in quality, product improvement, or research, or to eliminate or seriously disadvantage some competitors or raise substantial barriers to entry into the market such as standardizing upon a product that is patented, or that requires scarce raw materials or that will require some competitors to engage in extensive retooling, etc. Since there is no general antitrust immunity for participating in standardization of programs effectuated through any governmental agency, the following guidelines should not be deviated from without guidance from Legal Counsel:
a. Do not enter into an agreement to adhere to industry standards. Each company should preserve its freedom to conform or not.
b. Do not adopt a standard that results in the elimination of incentive for industry members to improve their products or engage in research.
c. Do not enter into a standardization program where there will be penalties, coercion or compulsion to enforce the standards adopted.
d. Do not standardize on a product that requires use of a patent or technical information not available on equal terms to everyone in the industry.
e. Do not standardize on a raw material that is scarce or difficult for non-members of the association to obtain.
f. Do not impose standards which may deprive consumers of legitimate options, such as eliminating less expensive product lines, or which may limit price competition.
4. GPA initiates programs to promulgate specifications for products. This activity is often a natural result of research and the standards activity in which the GPA engages. The comments and caveats in 3 above relating to the setting of standards are equally applicable to the setting of specifications.
D. Miscellaneous Matters
1. Position on Regulatory Matters. One should generally avoid taking positions which might benefit one segment of the gas processing industry at the expense of another.
2. Meetings. Adequate minutes of all meetings on what transpired should be kept. All notices for meetings, agenda and minutes of meetings should be reviewed by Legal Counsel for conformance to these guidelines. Agendas for all meetings should be prepared and given to participants before the meetings. All meetings of the Board of Directors shall have Legal Counsel in attendance. Any meeting sponsored by GPA may have Legal Counsel in attendance upon request of any GPA member. Any committee which meets without having a genuine agenda of business to be transacted is open to the charge that it might have been meeting for something improper.
3. Documents. Captions on letters to and from committees like "confidential" (indeed anything suggesting secrecy), should be avoided wherever possible. A suggestion of secrecy or the destruction or retrieval of documents could be the foundation for an adverse inference with respect to a paper that otherwise is innocuous. Such actions should be avoided.
4. Public Statements. Speeches, newsletters, press releases, statements to governmental agencies, etc., prepared by GPA spokesmen should be reviewed by Legal Counsel in advance.
5. Pre and Post Meeting Conduct. Persons attending GPA meetings must not discuss competitive or sensitive matters with each other at any time.
V. How to Avoid Antitrust Problems
A. General Operating Procedures
1. Assuming that the members of GPA derive an economic benefit from membership, the denial of membership to an applicant may constitute a restraint of trade because such a denial may limit the ability of the applicant to compete. Therefore, membership criteria must be carefully established with a view toward avoiding antitrust problems. Any action by the GPA or its Board of Directors which has the effect of rejecting a membership application should not become final without approval by Legal Counsel.
2. The Association should not restrict members from dealing with non-members or limit access to information developed by the Association, unless such limitation is firmly grounded upon the need to protect trade secrets.
3. All members of GPA should receive a copy of this Antitrust Policy Statement.
4. Legal Counsel should update members concerning antitrust problems periodically and should formalize the Association's antitrust compliance program.
5. Legal Counsel should approve in advance all new association programs or changes in existing programs that may have potential antitrust implications. In this regard, special attention should be given to statistical compilation and reporting programs.
6. All GPA meetings should be regularly scheduled, and members should never hold "rump" meetings.
7. An agenda should be prepared for each meeting of the Association, and the agenda should be reviewed in advance by Legal Counsel.
8. Legal Counsel should be present at all meetings of the Board of Directors and at any other meeting at which sensitive issues will be discussed.
9. The minutes of all meetings should be approved by Legal Counsel.
10. The minutes of all GPA meetings should be accurate and should not be signed if they have been doctored, are incomplete, or have not been approved by Legal Counsel.
11. The GPA should develop a formal document retention/disposal program.
12. No GPA staff member should have authority to communicate with officials of the Federal Trade Commission, the Antitrust Division of the Department of Justice or States' Attorneys General without prior approval of Legal Counsel.
The GPA must not:
1. Adopt regulations or policies which have price-fixing implications, such as prohibitions on advertising of prices, or which unreasonably restrict the ability of any member or group of members to compete.
2. Require members to refrain from dealing with a member who has violated the Association's rules, policies or by-laws.
3. Enforce any rule, policy or bylaw arbitrarily.
4. Impose unreasonably severe penalties for violation of a rule, policy or bylaw.
C. Topics of Discussion Which Must be Avoided at Association Meetings
1. Current or future prices. (Great care must be taken in discussing past prices).
2. What constitutes a "fair" profit level.
3. Possible increases or decreases in prices.
4. Standardization or stabilization of prices.
5. Pricing procedures.
6. Cash discounts.
7. Credit terms.
8. Control of sales.
9. Allocation of markets.
10. Refusal to deal with a corporation because of its pricing or distribution practices.
11. Whether or not the pricing practices of any industry member are unethical or constitute an unfair trade practice.
VI. A Case in Point
The following discussion of an actual case highlights the potential problems associated with association activities and the antitrust law.
The Supreme Court held in Hydrolevel Corp. v. The American Society of Mechanical Engineers, 456 U.S. 556 (1982), that a non-profit organization may be held liable for treble damages under the antitrust laws if the officers of one of its committees, as part of conspiracy with others, issue an anti-competitive "interpretation" (or misinterpretation) of one of the organization's standards for the committee officer's own purpose or for the purpose or benefit of his company. The holding of the Supreme Court may be properly viewed as a limited one resulting from the particularly unscrupulous acts of two individuals who were officers of an American Society of Mechanical Engineers ("ASME") subcommittee. These individuals gave a written opinion on ASME stationery, and with the apparent approval of the subcommittee as a whole. The opinion in effect indicated that a "low-water fuel cutoff" manufactured and sold by plaintiff Hydrolevel was in violation of ASME's code. One of the two subcommittee officers was a vice president of McDonnell & Miller, Inc., the major producer of low-water fuel cutoffs.
While this case arose only because of clearly imprudent and unlawful actions by only several members of a very large industry association, it is critical that similar associations use this case as a reminder of their responsibilities to fairly serve their member companies and the public as well. Of particular interest are the following antitrust exposures of an industry association which were discussed by the Supreme Court in its decision:
A. A standard-setting organization such as ASME has the opportunity for anti-competitive activity by its members, or the members' employees. The court stated:
"The facts of this case dramatically illustrate the power of ASME's agents to restrain competition. M & M instigated the submission of a single inquiry to an ASME subcommittee. For its efforts, M&M secured a mere 'unofficial' response authored by a single ASME subcommittee chairman. Yet the force of ASME's reputation is so great that M&M was able to use that one 'unofficial' response to injure seriously the business of a competitor."
B. The courts will likely hold the industry association liable for antitrust violations committed by its members under the theory that such members, or their employees, had "apparent authority". Such liability will occur even though the industry association was unaware of the improper acts and did not formally ratify these improper acts of several of its members.
C. The fact that the industry association does not benefit from the anti-competitive acts of its agents is not a defense.
D. The fact that an industry association is a nonprofit organization is not a defense to an antitrust violation.
The Supreme Court stated in conclusion:
"When ASME's agents act in its name, they are able to affect the lives of large numbers of people and the competitive fortunes of businesses throughout the country. By holding ASME liable under the antitrust laws for the antitrust violations of its agents committed with apparent authority, we recognize the important role of ASME and its agents in the economy, and we help to ensure that standard-setting organizations will act with care when they permit their agents to speak for them."
The concepts of consensus and due process used to develop and revise standards must be used in the area of standard interpretation. There was no claim that the ASME code was anti-competitive. It was the lack of the procedures designed to assure consensus and due process in the interpretation that gave rise to the problem.
The possibility of personal liability and member liability for those who participate in voluntary standards has in no way been changed by the decision in Hydrolevel vs. ASME. Had ASME's procedures been different for its interpretive process, the court might not have applied liability to ASME itself.
VII. GPA Policy
GPA shall continue to apply written procedures to govern the interpretation process, and the setting of standards, tests, formulae, etc. Such procedures shall insure that adequate due process and consensus exist as to any given interpretation.