Last month, we reported that the U. S. Department of Justice (DOJ) had threatened multiple public companies, private equity investors, and individuals with lawsuits for violating the ban on interlocking directorates under Section 8 of the Clayton Act. Section 8 prohibits the same firm or individual from sitting on the boards of competing companies. The DOJ based its claim of alleged violations on information that it gleaned from SEC filings, earnings calls, and other public sources.
The first results of the DOJ's renewed enforcement of Section 8 are now public. On October 19, 2022, the DOJ announced that seven individuals had resigned from the boards of directors of five public companies in response to accusations from the DOJ.1 The directors who resigned included private equity representatives. In each case, at least one of the corporations listed the other as a competitor in its annual report on Form 10-K. In announcing these actions, the DOJ's Assistant Attorney General Jonathan Kantor declared:
Section 8 is an important, but underenforced, part of our antitrust laws. Congress made interlocking directorates a per se violation of the antitrust laws for good reason. Competitors sharing officers or directors further concentrates power and creates the opportunity to exchange competitively sensitive information and facilitate coordination—all to the detriment of the economy and the American public … The Antitrust Division is undertaking an extensive review of interlocking directorates across the entire economy and will enforce the law.
Although the interlocks are now resolved, the DOJ might still attempt to pursue lawsuits against the public companies, the board members, or the investors that placed the board members.2 To avoid the distraction and upheaval of a Section 8 investigation, corporations would be well-advised to implement an antitrust compliance program that includes a process to screen directors, officers, and potential directors and officers for affiliations with competitors that could lead to problems. Even in situations where a safe harbor applies under Section 8, a director serving on the boards of two competitors creates a risk that competitively sensitive information will be shared, which can create business disadvantages or possibly lead to antitrust scrutiny under the Section 1 of the Sherman Act.
[1] Dept. of Justice, Directors Resign from the Boards of Five Companies in Response to Justice Department Concerns about Potentially Illegal Interlocking Directorates (Oct. 19, 2022), https://www.justice.gov/opa/pr/directors-resign-boards-five-companies-response-justice-department-concerns-about-potentially; see also SolarWinds Corp., Current Report on Form 8-K (Oct. 14, 2022) (stating that two directors appointed by a private equity fund “resigned following receipt of a letter from the [DOJ] alleging that their service on the Board violated Section 8 of the Clayton Antitrust Act.”).
[2] See United States v. W.T. Grant Co., 345 U.S. 629 (1953) (resolving the interlock “does not suffice to make a case moot” in all circumstances).
