I.INTRODUCTION

To assist TNOGA committees and their members, the Legal Committee has developed antitrust guidelines. This Summary is not intended to be a comprehensive treatise of the antitrust laws. It is, instead, intended to supplement the TXOGA policy and to provide you with an overview of the types of activities normally involving trade associations affected by the antitrust laws. The guidelines are also not intended to substitute for the legal advice members may receive for their own company’s Legal Counsel.

This Summary will identify general business practices which are absolutely prohibited by the antitrust laws and the policy and which must be avoided. It will also help alert you to types of conduct which could present potential antitrust problems and which you should avoid.

This Summary will be periodically updated to reflect new legislative enactments, court decisions and enforcement policy developments. This current summary may be supplemented by special instructions for specific situations or new developments which will be addressed to the appropriate personnel.

II.THE ANTITRUST LAWS

The antitrust laws of the United States were enacted and are enforced for the purpose of maintaining an economic system of free enterprise by encouraging competition in the market.

Sherman ActThe most important antitrust statutes relating to trade associations are Section I of the Sherman Act and Section 5 of the Federal Trade Commission Act. Section I of the Sherman Act prohibits “contracts, combinations, or conspiracies ...in restraint of trade.” While it

may be very difficult in cases not involving trade associations to prove the existence of a combination, the very nature of the trade association would eliminate that problem in a matter involving TXOGA. The Sherman Act is a criminal penalty, an violations will result in severe fines and jail time for individuals and other sanctions for the association.

Federal Trade

Commission ActSection 5 of the Federal Trade Commission

p r o h i b i t s “unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” Unlike Section 1 of the Sherman Act, the Federal Trade Commission Act reaches anti-competitive acts committed by single persons or companies, whether or not there is an agreement or “combination.” The FTC has defined the phrase “unfair methods of competition” to include business activities which violate the antitrust laws. Additionally, the phrase has been defined to encompass business practices which are anticompetitive or deceptive, even if they do riot violate the antitrust laws.

Efforts to Influence The Supreme Court has held that the

Government Actionconstitutional rights of assembly and to petition the government are not limited by the Sherman Act. Lower courts have extended this privilege (commonly referred to as the Noerr-Pennington doctrine) to other government bodies including regulatory agencies and courts. The breadth of the privilege is not clear as cases turn on the actual conduct in the particular case.

Under the Noerr-Pennington doctrine, an association generally has the right to meet and collect necessary information and to joint presentation to government bodies with respect to activities of those bodies of common interest to the group. TXOGA and its Committees should confine their activities to matters relating to actual or prospective government policy—making activities, i.e. legislative and regulatory rulemaking, unless other activities are specifically cleared by the Legal Committee.

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 would affect each company. When it is necessary to collect information on an industry wide basis in order to meet effectively a regulatory proposal or demand, the method of doing so should be guided by the Legal Committee. Information collection should at a minimum conform to the guidelines set forth in Standards and Certification section below.

III.PENALTIES

The Antitrust Division of the Justice Department has broad powers to enforce the antitrust laws. It may bring either criminal proceedings or civil suits against the association, its members and staff individually for violation of the antitrust laws. The FTC also has authority over the association and its members and staff to enforce the antitrust laws and the Federal Trade Commission Act. The enforcement measures of the FTC include civil action and injunctive orders; the FTC does not have authority to institute criminal actions.

Violation of the antitrust laws can have numerous adverse consequences:

ImprisonmentConviction of a violation of the Sherman Act is a felony. Conviction may result from a trial or from entry of a plea of guilty or nolo contendere (“no contest”).Conviction may subject the individual to imprisonment for up to three years.

FinesConviction of the association for violation of the Sherman Act may subject it to fines of up to $10 million for each criminal offense. A criminal charge brought against an individual may subject the offender to fines of up to $350,000 in addition to imprisonment.

OrdersThe Justice Department may obtain or the FTC may issue an order enjoining the association or individuals from certain conduct or mandating certain business practices. Additionally, the Justice Department or the FTC may impose extensive reporting requirements on the association. Such orders and reporting obligations could seriously restrict the association’s ability to perform many of its lawful business activities.

Civil ActionsThe Justice Department, the FTC or any person who has been damaged by activities which violate the antitrust laws, including state attorneys general acting on behalf of state agencies or consumers, may bring civil actions against the association arid individuals. Private individuals may seek to recover damages equal to three times the actual damages suffered plus attorney fees.

IV.ANTITRUST PROBLEM AREAS OF ASSOCIATION ACTIVITY

From a practical standpoint, there are five principal antitrust problems on which a trade association such as TXOGA should focus its attention. These include the violations of price fixing and market or customer allocation (including boycott), and the “rule of reason” standard inquiries of membership, standardization and certification, and industry self—regulation.

Price—FixingAssociation members are most likely to violate, and the government has evinced its greatest concern about the price fixing prohibitions of the Sherman Act. A price fixing violation can be inferred from the fact of similar price conduct by members, even though there is no written or oral agreement shown. Price—fixing is a per se violation of the Sherman Act, and is therefore viewed as so inherently unreasonable that it is no defense that the prices set are reasonable or that the ends sought are worthy.

To avoid the appearance of a violation, the following topics MUST NOT be discussed at any association and committee meeting:

a.current or future prices (great care must be taken in discussing past prices)

b.what constitutes a “fair” profit

c.possible changes in prices

d.stabilization of prices

e.pricing procedures

f.any type of discount

g.credit terms

h.any other aspect of the final delivered price of any product

i.whether the pricing practices of any industry member are unethical or constitute an unfair trade practice

Boycotts & Allocations An agreement among members of an association

of Customers orto allocate customers is in and of itself a criminal

Territoriesact. The antitrust laws prohibit any understanding or agreements between competitors that involve the allocation of customers or territory, or that involve joint refusals to buy from certain suppliers or sell to certain customers. This activity, like price-fixing, is per se unlawful, and it will not be a defense that the agreement was reasonable under the circumstances.To avoid the appearance of a violation, the following topics MUST NOT be discussed at any association or committee meeting:

a.control of purchases or sales

b.allocation of customers or markets

 

c.refusals to deal with suppliers or purchasers

MembershipA basic assumption about any trade association is that its members derive an economic benefit from membership. Denial of membership to an applicant may, therefore, constitute a restraint of trade in that such denial of an economic benefit limits the right of the applicant to compete. Thus, membership criteria must be carefully drafted to avoid antitrust problems.

To avoid the appearance of a violation, the TXOGA membership policy avoids, and should be construed to avoid:

a.restrictions on dealing with non—members

b.exclusion from membership, especially if there is a business advantage in being a member

c.limitations on access to association information, unless the limitation is based upon protection of trade secrets

Standardization andAn association that develops voluntary standards

Certificationmay fact antitrust problems if the standard favors

some and discriminates against others. Similarly, association certification activities which further the interest of certain groups to the exclusion of others may result in antitrust problems.

To avoid the appearance of a violation, the following guidelines should be adhered to:

a.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

b.Statistical compilations may be viewed as part of or in furtherance of a per se violation. To avoid this, the following should be carefully observed:

1.Reports should not identify the statistics of individual companies. This will help to avoid allegations that production quotas are being suggested or pressures are being made on low—end prices.

2.Discussions of regional statistics at meeting should be limited to general terms. Prices, costs, or other competitive or sensitive matters MUST NOT be discussed.

3.TXOGA should not assess penalties for failure of members to furnish data, nor should it use compulsory methods, such as inspection of members’ books, to assure accuracy of reports.

4.Particular customers or sellers should not be identified and the report should not be in a form that would permit easy identification of individual participants. Company data or averages should be grouped in a manner that one company cannot determine the data of another company by simply “backing out” its own data.

5.There should be no editorial comment or analysis of the data if it relates to prices, output or costs. Such activity might be construed as exhortations to raise prices or limit production.

6.There must be no limit on 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 the proposed limitation is to assure that the data reported is accurate and not misleading.

7.The data disseminated should be readily available upon reasonable terms to both TNOGA members and non—members, and to both sellers and buyers. Any fee charged to non—members must be reasonably related to the cost of gathering and disseminating the data.

Industry

Self-Regulation Associations often establish codes of ethics for their members with procedures for enforcing them. It is laudable for an association to wish to promote high ethical standards, but antitrust problems may arise if an association’s attempt to enforce its code of ethics causes economic injury.

To avoid the appearance of a violation,

the following actions MUST NOT be taken:

a.Adopt regulations or policies which have price-fixing implications, such as prohibitions on advertising of prices, or which unreasonably restrict the ability of any members or group of members to compete

b.Require members to refrain from dealing with a member who has violated TNOGA’s rules, policies or by—laws

c.Enforce any rule, policy or by­law arbitrarily

d.Impose unreasonably severe penalties for violations of rules, policies or by-laws

V. GENERAL GUIDELINES

The following general guidelines must

also be observed:

 

MembershipMembership criteria must be carefully established. Any action by TXOGA which has the effect of rejecting a membership application shall not become final without approval by Legal Committee.

TXOGA shall not restrict members from dealing with non—members or limit access to information developed by the association unless the information constitutes trade secrets.

Position on Regulatory One generally should avoid taking positions which Mattersmight benefit one segment of the industry at theexpense of another.

Pre- and Post-Meeting Persons attending TXOGA meetings must not discuss Conductcompetitive or sensitive matters with each other at anytime.

Members must not attend “rump” sessions.

MeetingsAgendas of all meetings must be compiled for review by the Legal Committee. Approved agendas shall be distributed prior to the meeting with annotation whether Legal Committee will be present at the meeting.

All association meetings shall be scheduled and no “rump” sessions will be allowed.

Legal Committee shall be present at all Board of Director and general meetings and any other meeting where sensitive issues are being discussed as denoted on the agenda, or where any member requests the presence of the Legal Committee.

Minutes of all meeting must be approved by the Legal Committee. The minutes should include statements to show the interest of the association in complying with the antitrust laws. Minutes should

not be signed if they have been altered or are incomplete.

Antitrust PolicyAll members of TXOGA shall receive a copy of the Antitrust Policy and Guidelines.

Legal Committee shall update members concerning antitrust problems periodically and shall formalize the association’s antitrust compliance program.

Legal Committee shall approve, in advance

of implementation, all new association programs or changes in existing programs that may have antitrust implications. statistical compilations and reporting programs will always require Legal Committee approval.

DocumentsCommunications to and from committees requesting secrecy should be avoided.Such requests may create an adverse inference regarding the purpose of the document or the intentions of the communicants.