Communications to Competitors Bring Antitrust Potential


For credit professionals, danger could be lurking in a casual conversation at an after-meeting get-together at a local tavern, or it could be present in a remark made at an industry credit trade group. The danger comes in the form of engaging in a communication with a competitor that could be construed as a violation of federal or state antitrust laws, which can subject an alleged offender to felony criminal charges. How to ensure that credit professionals don’t unintentionally end up in that predicament was the subject of an NACM teleconference, Feb. 26.

The teleconference was presented by Wanda Borges, Esq., of Borges & Associates, LLC of Syosset, NY and was entitled, "Communicating With Competitors: Risks and Safeguards to Protect Your Company." Borges focused on two major antitrust statutes that she said impact the daily lives of credit professionals. The Sherman Antitrust Act of 1890 was the first major piece of federal antitrust legislation enacted in the United States. Referring to the act, Borges noted that, "It prohibits contracts, conspiracies or collusion of any kind that will reduce competition, restrain trade or monopolize an industry." A violation of the provisions of this act could result in a felony conviction. In order to emphasize how important it is to always be aware of the provisions of this law, Borges said, "Any time you are together with another competitor, you run the risk of conversations in violation of the Sherman Antitrust Act."

The other major federal antitrust statute that Borges pointed to was the Robinson-Patman Act of 1936. One distinction of that act noted by Borges is, "You can violate that (act) all by yourself without anybody else being involved in that activity." She said under this statute it is unlawful for any person engaged in commerce to "discriminate in price between different purchasers of commodities of like grade and quality where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce." "Agreements between competitors can raise antitrust suspicions," Borges said. "Agreements on price and credit terms are potentially the most serious." A restraint of trade takes two or more parties. She provided an example of seven movie theaters in a state that were supplied with movies from a particular movie distributor. They were all sent a letter by the movie distributor requiring them to raise their ticket prices by $2. Six of the movie theater operators complied with the demand. The seventh objected on the grounds that the people of that community couldn’t afford the higher prices and the loss of first-run movies would result in a loss of business for that movie theater. That seventh movie theater sued the distributor and the other six movie theaters for restraint of trade. The court declared that the six movie theaters knew that their actions would restrain the trade of the seventh.

Borges reminded teleconference attendees that credit terms are an indispensable component of price. Although commerce across state lines is required for a federal antitrust violation, there are various state laws that mimic the federal antitrust statutes. She pointed out that those companies that are selling purely services do not come under the provisions of the antitrust statutes. She cited some examples of under what circumstances different prices could be set for customers. For example, if a supplier in New York had two identical customers, from a credit and financial perspective, with one in Washington and one in Connecticut, Borges said that the supplier could set different prices if that supplier pays for shipping. "If you are paying for or sharing freight costs, they are no longer identical customers," Borges said. Also, if one customer buys in quantities that make it more economical to ship to them, such as buying a full freight car that makes one stop — as opposed to one that makes multiple stops to multiple customers — then different prices can be set for those customers. Also, she pointed out that if customers have very different credit situations, different credit terms can be offered to them, as in the case of one customer that is heavily in debt versus another that carries no debt.

A company may meet the competition but not beat the competition. "You must establish that generous terms (given to a customer) are those given by your competitors," Borges said. She advised trying to get a customer to reveal, in writing, the generous terms offered by other companies. That way it can be better documented that you relied on your customer’s representations of other generous offers in the event your generous pricing offer comes into question in terms of an antitrust violation. "The best evidence is always good documentation." Borges recommended not divulging credit references telephonically as the representations made about a customer could be distorted or misrepresented. She said, however, that exchanging credit information is legal. "I strongly recommend you do it by fax or electronic transfer as proof of what information was exchanged," she added. As far as credit information kept by a company on its customers, Borges said, "You have to keep and safeguard your information to prevent it from falling into the wrong hands or being altered."

Trade group meetings are events where credit information may be exchanged among companies about customers. Borges recommended following the NACM Antitrust Guidelines in order not to do or say anything with respect to a customer that could be construed as an antitrust violation. She pointed out that these guidelines are read before the commencement of all NACM industry credit group meetings. During these meetings Borges noted that it is not legally permissible to discuss price or credit terms or credit lines given to customers. She warned to be careful about discussions held outside the confines of the meeting itself. "Most unlawful discussions are not going to take place at the trade group meeting. It’s at lunch, dinner or at the bar when unlawful discussions take place." Borges told of an incident where she was at a social gathering after an event and overheard two credit professionals engaged in a conversation that appeared to be heading toward the discussion of future credit intentions directed to a common customer. She said she interrupted them and asked them if they really wanted to be talking about that, which got them to cease that particular line of discussion. "You cannot discuss future activity, including discussions relating to an involuntary petition of bankruptcy." As far as filing an involuntary petition for bankruptcy she said, "There are very strict criteria on how to file an involuntary petition for bankruptcy. You need three or more creditors to file the petition. She advised anyone considering such an action to analyze the situation on an individual basis regarding whether it is appropriate to file such a petition against a customer.

Several teleconference attendees phoned in questions to Borges after her presentation. On the question of whether print advertisers (as opposed to radio or television) fall under commodity rules Borges said, "I would treat it more like a commodity." On the question of whether different terms can be set for customers that use credit cards, Borges said, "You don’t have to give the same terms as credit customers but you are not required to give the same terms as cash." However, she advised that all credit card customers should be treated equally.

Source: Tom Diana, NACM Staff Writer and Wanda Borges, Esq.

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