Talking to your competitors can be risky

Date: September 13, 2011

Two recent guilty pleas announced by the U.S. Department of Justice’s Antitrust Division highlight an underappreciated area of serious legal liability – price coordination in violation of the Sherman Act. 

On August 24, 2011, the Justice Department announced the guilty plea of Great Lakes Concrete, one of four Iowa companies that sell “ready-mix concrete” for construction projects. The companies have pled guilty to reaching agreements regarding their respective price lists and project bids, and then accepting payment for those sales at prices artificially increased due to collusion.  The press release emphasizes the maximum fine that may be imposed for the conviction, which is the greater of $100 million, twice the gain derived from the crime or twice the loss suffered by the victims of the crime.  In addition, the president of Great Lakes Concrete was sentenced to serve a year and a day in prison.

On August 31, 2011, the Justice Department announced a guilty plea by a California company, Sabry Lee (U.S.A.) Inc., in “a global conspiracy to fix the prices of aftermarket auto lights.”   The company is the U.S. distributor for a Taiwanese producer of the auto lights, which are most commonly installed in vehicles after collisions.  The alleged conspiracy was apparently between several Taiwan-based manufacturers of auto lights and their U.S. distributors, who “met and agreed to charge prices of aftermarket auto lights at certain predetermined levels” and “issued price announcements and price lists in accordance with the agreements reached, and collected and exchanged information on prices and sales of aftermarket auto lights for the purpose of monitoring and enforcing adherence to the agreed-upon prices.”  Executives of two of the U.S. distributor companies have pled guilty to price-fixing charges, and the second-ranking officer of one of the Taiwan manufacturers was arrested in the U.S. and has been indicted. 

While the press release leads one to believe that the executives in these cases knowingly intended to fix prices at artificially high levels, it is quite possible that at least some of them were not completely aware of the legal implications of their conversations.  However, any communications between competing companies concerning prices are legally risky. 

The takeaway:  Business people should seek pricing intelligence from customers, service providers, or independent websites -- but not from direct communications with their competitors.  This is particularly true for industries in which formal competitive bidding is common or in which a relatively small number of companies make a large percentage of the total sales.  

Beyond that basic rule, certain types of communications and collaborations between competitors are permitted and even encouraged by U.S. antitrust law.  Each situation needs to be analyzed based on the particular facts and reasons for your collaborative effort.


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