The US Department of Justice (DOJ) recently sued former joint venture partners because they allegedly coordinated their competitive activities beyond the legitimate scope of their venture. This case illustrates several important points. First, companies who collaborate through joint ventures and similar arrangements need to be mindful that any legitimate collaborative activity does not “spill over” to restrain competition in other unrelated areas. Second, DOJ discovered the conduct during its review of documents produced in connection with a merger investigation. This is the most recent reminder of how broad ranging discovery in merger investigations can result in wholly unrelated conduct investigations and lawsuits. Third, one of the parties was a portfolio company of a private equity sponsor, highlighting how private investors can be targeted for antitrust violations.
WHAT HAPPENED:
- On February 14, IMG College, Learfield Communications, LLC, and A-L Tier I LLC entered into a settlement with DOJ regarding alleged agreements not to compete in the multimedia rights market for college athletic programs.
- In 2017, IMG and Learfield announced a $2 billion merger to form Learfield | IMG College. Both entities provide a variety of services to colleges, including trademark licensing, ticketing and multimedia rights management. IMG and Learfield had previously cooperated in limited joint ventures, but they remained competitors outside of those ventures.
- During DOJ’s review of the merger, it uncovered what it alleged to be anticompetitive agreements between the rivals and other smaller competitors to suppress competition for multimedia rights management services.
- DOJ alleged that the parties used joint ventures to submit “sham” joint bids. They also allegedly used the unwinding of joint ventures to establish agreements not to bid for certain college accounts, as well as to refrain from competing against each other’s incumbent accounts. DOJ also alleged the parties used an informal policing mechanism, whereby they would seek permission before bidding on the other’s account or would request that a bid be withdrawn if permission was not obtained in advance. While DOJ did not attack the joint ventures themselves, it alleged that the parties to the joint ventures went well beyond the legitimate scope of the ventures by agreeing not to compete in other unrelated areas.
- The settlement provides that the parties will immediately cease the alleged anticompetitive agreements and refrain from engaging in such behavior in the future. The settlement does not insulate the parties from any claims brought by private litigants challenging the same conduct.
WHAT THIS MEANS:
- The antitrust agencies have broad authority to collect company documents as part of an in-depth merger investigation.
- This case represents at least the fifth time since June 2015 that DOJ has found allegedly unlawful, ongoing antitrust violations based on materials merging parties produced during a merger investigation. Examples of collusive conduct in recent cases included: submitting sham joint bids, agreeing to not bid, agreeing to not hire a competitor’s employees, and limiting advertising content or locations.
- While DOJ has resolved these investigations with civil settlements, it also has the ability to investigate such conduct criminally and has done so. For example, DOJ brought criminal charges against two companies and four executives after it uncovered a price-fixing conspiracy in the packaged seafood industry during its investigation of a planned acquisition. Criminal antitrust investigations may result in a criminal fine or even jail time. The US Federal Trade Commission (FTC) may also refer conduct matters it discovers to DOJ for further investigation.
- Foreign antitrust authorities also have launched conduct investigations based on information learned in a merger investigation
- Private equity funds that engage in frequent deals should be particularly mindful that their portfolio company’s most sensitive business documents may need to be produced to the antitrust agencies during a merger investigation. A private equity fund, and its managers who oversee the portfolio company, potentially have exposure for antitrust violations by the portfolio company.
- Companies should be mindful that collusive conduct may arise from relationships formed in legitimate business activities such as joint ventures, legal settlements, trade association meetings or simply knowing personnel in a small industry. It is important for companies large and small to regularly train employees on antitrust risks raised by competitor interactions, including exchange of competitively sensitive business information.
