In today’s hyper-competitive market, it’s a constant struggle to retain relationships with existing customers, distributors, and partners while also winning new business. The pressure to meet demands, generate revenue, and secure future business seems relentless. Some are tempted to ignore or consciously violate the laws and regulations that control competition in the U.S., EU, and many other countries around the world. Others think these rules apply only to top executives of major corporations; in reality, they apply to companies of all sizes and to every employee engaged in competitive activities.
Competition laws were first passed in the United States in the 1890s in response to companies forming “trusts” (horizontal agreements to eliminate competition) in order to raise prices. These “antitrust” laws were enacted to ensure fair competition, which results in lower prices, better products, and more consumer choices.
At present, there are more than 100 countries with fair competition laws similar to U.S. antitrust laws, including the European Union and all of the member states, countries that formerly made up the Soviet Union, and most Asian countries, including Singapore, Japan and China. In addition, regulatory bodies around the world have begun to enforce competition rules more frequently and to impose stiffer penalties upon violators.
BBNC is committed to full compliance with all fair competition laws, regardless of where we do business. To protect yourself and our company, you must be aware of the issues involved in these laws and recognize when you need to seek help from our Compliance or Departments.
The Appearance of Wrong Doing
Violations of competition law do not have to include a contract or anything in writing. Even the appearance of an understanding with a competitor can bring serious penalties. The safest course of action is to avoid meetings and communication unless they are public and clearly for a legal purpose. Avoid discussing prices, credit terms, customers, upcoming bids, sales territories, profits or margins, strategies, or plans with our competitors. For example, you may attend an industry conference that includes competitors. If one of these subjects comes up at lunch, announce vocally that this topic of conversation is inappropriate and “make a show” while excusing yourself. If, after the conference, a change in prices or terms occurs and is investigated, you will be remembered as the one who vocally objected and left before the conversation got underway.
Agreements with Customers
Competition laws also apply to the agreements our companies make with customers. For example, arrangements with distributors or dealers must not include customer or territorial restrictions, tying one product to another, or exclusive dealing agreements. These may be considered collusion. However, business deals with customers are judged less harshly than deals with competitors. The U.S. and other courts use the “rule of reason,” which attempts to balance the action with the business justification behind it. For instance, agreements may prevent distributors from charging more for new or scarce products or set a maximum sales price. While technically this is price fixing, it protects the end consumers; and since it supports the spirit and intention of fair competition laws, it may be allowed.
Avoiding Penalties, Disclosing Violations
In general, though, collusion or other competition law violations, no matter how minor, are indefensible and can incur penalties that far exceed the gain sought by the wrongdoing. Corporate criminal liabilities can amount to hundreds of millions of dollars. Under most competition laws, violations by individuals are considered felonies and carry stiff penalties, including jail time.
It is far better to report a violation as soon as it is discovered than to pretend it does not exist or hope that it will go undetected. Accordingly, immediate reporting of competition issues can be critically important both to our company and our employees.
Under leniency programs in many jurisdictions including the U.S., the EU, Japan, and South Korea, there are significant benefits to the company if it is the first to report a violation of competition laws.
Remember, violations can carry serious criminal penalties and damage both your reputation and that of our company. These damages will far outweigh any economic gain recognized by a violator.
Your Responsibility to Compete Fairly
The best course of action is to compete vigorously and fairly and always operate within the laws and regulations of the U.S. and the countries where we do business:
– Use caution in any written communication with our competitors.
– Avoid “bad intent” language such as “run them out of business” or “squish them like a bug.”
– Accentuate positives about our company and products rather than disparaging the competitor.
– Follow our company policies and process when a dealer is terminated.
Finally, keep in mind that competition law can be complex. While certain activities such as price fixing are almost always illegal, separating legal from illegal conduct often requires an in-depth evaluation of the specific facts of the situation along with a thorough understanding of the applicable law.
BBNC’s Compliance Department is charged with performing this kind of detailed analysis. As a responsible employee, you don’t have to be an expert on fair competition laws. But you do need to be able to recognize situations that call for a consult with Compliance.
At a meeting of your professional organization, you discuss costs and pricing in your industry with some of your competitors. One person made a suggestion about what could be done in the industry to get prices back where they belong. After the meeting, and with no further discussion among the competitors, each company that was present at the meeting adopts the suggestion. Could this suggestion be considered price fixing?
Yes, this could be considered price fixing. Price fixing need not be a formal agreement; this is the kind of discussion that can be interpreted to violate competition laws, and participants should make a point to avoid them.
U.S.-based Company A decides that it is not going to bid on business from Customer Z in Europe. Company A’s competitor, Company B, wins Z’s business. A few weeks later representatives from Company A and Company B meet at a trade association meeting and the Company A employee explains that he is trying to win a new account (Company Y) in the U.S. He suggests to the Company B representative that “you owe us one” (referring to the Z business). Company B does not bid on Company Y’s business. Is this a violation?
No, this is not a violation if Company B decided not to bid on the Y business for its own, independent business reasons. Unfortunately, because of the inappropriate “you owe us one” comment, there is circumstantial evidence of an agreement to allocate customers. Companies A and B could spend a lot of money on lawyers trying to avoid a cartel claim.