Recommended actions
This enforcement action underscores the US antitrust authorities´ ongoing interest in Section 8 enforcement and signals that they may be actively looking for opportunities to evaluate situations that present potentially problematic interlocks. Indeed, the FTC press release included the following statement from the director of the FTC’s Bureau of Competition: “We encourage all firms to review their board memberships to avoid any overlaps with competitors—including when new board members are added as a result of investments by private equity firms or other new shareholders.”
In light of this, companies should consider taking steps to avoid Section 8 scrutiny, such as:
- Conduct annual analyses of directors’ and officers’ board memberships to detect any emerging Section 8 interlocks. This is especially important in industries involving organic expansion, such as technology and healthcare, where new competition may emerge quickly.
- Include Section 8 compliance reviews as part of integration planning after closing an acquisition. Mergers and acquisitions can create springing interlocks, as officers or directors of newly acquired companies may serve on boards of companies that compete with the acquiring company.
- Expand compliance reviews to assess non-corporate entities. Section 8 can apply to partnerships or limited liability corporations. Accordingly, broad compliance assessments should be made across business units. Assessments should include managers who serve on non-corporate entities in a capacity that could be viewed as analogous to a corporate officer or board of director role.
- Think carefully about the scope of products and geographies when assessing “competitive sales.” Agencies have urged parties to take a “broad view” of competitive sales, noting that it may apply a different analysis for Section 8 than it would in other antitrust cases. It is therefore important to regularly review (and potentially reevaluate) how product and service revenues are categorized and measured as part of any Section 8 compliance audit.
- Develop strong organizational safeguards, such as firewalls between potentially interlocked executives and procedures for directors handling competitively sensitive information. These steps are essential for compliance. An actual or potential interlocking directorate—regardless of whether it constitutes a violation under Section 8—may facilitate, or be perceived to facilitate, a separate antitrust violation under Section 1 of the Sherman Act or Section 5 of the Federal Trade Commission Act. These safeguards should be developed and implemented even if a Section 8 exemption appears to be applicable.
In more detail
The FTC reported that these three individuals served as members of the board of both Sevita Health and Beacon Specialized Living Services, Inc., which both offer residential facilities and other services to individuals with intellectual and developmental disabilities. The FTC did not file any complaint against the companies or require a consent order. The resignations were done voluntarily, which is consistent with prior resolutions of Section 8 investigations. The FTC praised the companies for working with them to resolve the issue quickly and reminded all companies to regularly review their board memberships to avoid any such interlocks. Interlocking directorates are prohibited under Section 8 of the Clayton Act unless one of its de minimis exceptions applies, which are based upon the volume of revenues derived from sales made by the operative companies in competition with one another.
The typical remedy sought and obtained in Section 8 cases brought by the federal government is injunctive relief (i.e., removing the individual from one of their positions to eliminate the interlock). While private parties are also able to pursue Section 8 claims, there has been very limited private enforcement.
This development reinforces that Section 8 remains a priority for the FTC. Proactive compliance—through regular board audits, integration planning, and safeguards—will allow companies to minimize the possibility of scrutiny and mitigate antitrust risk.
