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

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Antitrust seminar at 2014 CreditScape, Western Region Credit Conference Seminar Slide Deck, sponsored by Credit Management Association. More information: www.creditmanagementassociation.org

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

  1. 1. 1 CMKF Creim Macias Koenig & Frey LLP AANNTTIITTRRUUSSTT ************************************************************************** THE MINE FIELD EVERY TRADE SUPPLIER MUST CROSS ***************************************************
  2. 2. 2 CMKF Creim Macias Koenig & Frey LLP  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
  3. 3. 3 CMKF Creim Macias Koenig & Frey LLP First…… some background about antitrust law.
  4. 4. 4 CMKF Creim Macias Koenig & Frey LLP 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)
  5. 5. 5 CMKF Creim Macias Koenig & Frey LLP
  6. 6. 6 CMKF Creim Macias Koenig & Frey LLP Sen. John Sherman (R-Ohio) Pres. Theo. Roosevelt (R-NY) Pres. Wm. Taft (R-Ohio)
  7. 7. 7 CMKF Creim Macias Koenig & Frey LLP Purposes of Antitrust Law  Maintaining a free market through “fair” business practices and competition.  Primary objective is protecting consumers  Preserves competition not the competitors.
  8. 8. 8 CMKF Creim Macias Koenig & Frey LLP 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?
  9. 9. 9 CMKF Creim Macias Koenig & Frey LLP
  10. 10. 10 CMKF Creim Macias Koenig & Frey LLP 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
  11. 11. 11 CMKF Creim Macias Koenig & Frey LLP 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
  12. 12. 12 CMKF Creim Macias Koenig & Frey LLP Sources of Antitrust Laws • Federal Statutes • State Statutes (State laws generally mirror federal but are usually described as “unfair competition” laws.)
  13. 13. 13 CMKF Creim Macias Koenig & Frey LLP SHERMAN ACT 1. Conspiracies or Agreements Between Competitors That Restrain Trade 2. Monopolization or Attempted Monopolization
  14. 14. 14 CMKF Creim Macias Koenig & Frey LLP 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.
  15. 15. 15 CMKF Creim Macias Koenig & Frey LLP 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."
  16. 16. 16 CMKF Creim Macias Koenig & Frey LLP 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.
  17. 17. 1177 CMKF Creim Macias Koenig & Frey LLP Developments in Credit Card Law (Yes Virginia, there really is a Sherman Act.) Justice Department Consent Decree with Visa and Master Card
  18. 18. 1188 CMKF Creim Macias Koenig & Frey LLP http://www.justice.gov/opa/pr/2010/October/10-at-1115.html
  19. 19. 1199 CMKF Creim Macias Koenig & Frey LLP Banks slashed small business lending by $43 billion http://money.cnn.com/2011/02/11/smallbusiness/small_business_lending_drop/index.htm
  20. 20. 20 CMKF Creim Macias Koenig & Frey LLP 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.
  21. 21. 21 CMKF Creim Macias Koenig & Frey LLP Clayton Act  Exclusive Dealing Agreements,  Tying Arrangements Unreasonably Restraining Trade,  Mergers That Will Reduce Competition
  22. 22. 22 CMKF Creim Macias Koenig & Frey LLP 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
  23. 23. 23 CMKF Creim Macias Koenig & Frey LLP 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
  24. 24. 24 CMKF Creim Macias Koenig & Frey LLP 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
  25. 25. 25 CMKF Creim Macias Koenig & Frey LLP 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.
  26. 26. 26 CMKF Creim Macias Koenig & Frey LLP 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.
  27. 27. 27 CMKF Creim Macias Koenig & Frey LLP 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.
  28. 28. 28 CMKF Creim Macias Koenig & Frey LLP Trade Organizations http://www.ftc.gov/opa/2009/03/namm.shtm
  29. 29. 29 CMKF Creim Macias Koenig & Frey LLP THE RECURRING QUESTION OF THE IMPACT OF ANTITRUST LAW ON PRICE & CREDIT DECISIONS AND BUSINESS POLICIES
  30. 30. 30 CMKF 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.
  31. 31. 31 CMKF Creim Macias & Koenig LLP 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?
  32. 32. 32 CMKF Creim Macias & Koenig LLP 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?
  33. 33. 33 CMKF Creim Macias Koenig & Frey LLP 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?
  34. 34. 34 CMKF Creim Macias Koenig & Frey LLP 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?
  35. 35. 35 CMKF Creim Macias Koenig & Frey LLP 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?
  36. 36. 36 CMKF Creim Macias Koenig & Frey LLP 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.
  37. 37. 37 CMKF Creim Macias Koenig & Frey LLP 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.
  38. 38. 38 CMKF Creim Macias Koenig & Frey LLP 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.
  39. 39. 39 CMKF Creim Macias Koenig & Frey LLP RICHARD C. MACIAS Creim Macias Koenig & Frey LLP 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.

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