Wanda Borges Explains Anti-Trust Issues and Why CMA Industry Credit Groups Exist

Those who attended a past CMA webinar learned some valuable information on how to steer clear of possible violations of anti-trust laws. The session, entitled “Navigating the Antitrust Rules: Myths To Dispel And Realities To Understand,” was presented by Wanda Borges, Esq., of Borges and Associates, LLC, who is an advisor to CMA on a range of legal issues relevant to business credit.

Borges discussed the three main federal statutes that pertain to antitrust and restraint of trade practices. They are the Sherman Antitrust Act of 1890, the Clayton Act of 1914, and the Robinson-Patman Act of 1936. She said the Sherman Antitrust Act prohibits contracts, combinations and conspiracies in restraint of trade in interstate commerce or with foreign nations. The act makes it a felony to conspire to restrain trade; or to monopolize (or attempt to monopolize). The Clayton Act was passed, she noted, to correct defects in the Sherman statute and further makes it unlawful to enter into any of several specified types of prohibited transactions whose purpose or
effect would be to restrain trade or injure a competitor. Robinson-Patman was partially an amendment to The Clayton Act, making it unlawful to “discriminate in price between different purchasers of commodities of like grade and quality” or knowingly to induce or receive a prohibited discrimination in price. She added that violations of this act could result in civil or criminal penalties.

Credit terms are tantamount to price, Borges noted, according to a 1980 Supreme Court decision. “Anytime you fix or adjust credit terms you are fixing a price,” Borges said. She pointed out that allowing a customer to pay in 30 days gives that customer the use of that money for that period and is of monetary value. “There is a big difference between C.O.D. and credit terms.”

In determining if an action constituted a conspiracy to commit an action that resulted in a restraint of trade, Borges pointed to four elements that must exist. There must be knowledge of all the parities, a common purpose, an actual restraint of trade and intent to restrain trade. She presented an actual example—where a movie distributor, in a written communication to 7 movie theaters, required a $2 increase in movie ticket prices in order to continue
getting first-run movies. She noted that six of the theaters complied by raising their prices while the seventh resisted and sued the other theaters and distributor for restraint of trade. The argument presented to the court by that
theater was that the economic status of the neighborhood in which the plaintiff’s theater was located could not sustain a ticket price increase. Therefore, the ticket price increase would render the theater incapable of
presenting first-run movies. The court ruled that the arrangement was a restraint in trade by the defendants. “You have to watch very carefully you don’t get roped into a conspiracy…,” Borges advised.

“You always have to keep in mind what price fixing is all about,” she said. “You have to charge the same prices to same quality customers.” She noted that different terms could be set for customers of differing qualities, however: “If one customer has a superior credit history you can give them a discount.”

The exchange of credit information is perfectly legal, she added. “You may exchange information—and today you are exchanging more information electronically. I heartedly recommend that when you exchange information you do not do so on the telephone, because that information can be misinterpreted.” Another way that credit information can be shared is through credit (industry) group meetings. However, she noted that these meetings must be run under strict guidelines that prevent the exchanging of information or comments that could be a violation of antitrust laws. “CMA runs credit group meetings exactly by the book,” she noted.

One of the critical things participants must observe during such a meeting is that any remarks relating to a customer be confined only to completed transactions. Any comments relating to intended future actions are not allowed under antitrust laws, she noted, such as saying, “I will never sell to that customer again.”

“You can’t say that,” Borges said. All you can say is “I’ve cut them off’. I’ve placed them on a credit hold.'”

Credit group meetings should have a written agenda that is followed, she said, and noted that the agenda and the minutes of the meeting should be kept on file. She also cautioned against holding any meetings outside
the scheduled credit group meetings: it would even be illegal to discuss future price or credit terms with other competitors regarding a customer in Chapter 11 bankruptcy.

A new rule in federal court requires complete disclosure of all electronic data pertaining to cases. Borges noted that even if an e-mail or other electronic document has been deleted on a computer it may still be retrieved. “What we think is gone, a forensic computer examiner can find,” she advised. “Be extremely careful what you transmit electronically.”