The Statute and Exemptions
The antitrust laws are designed to ensure robust competition between and among firms. Most often, the laws focus on the frontlines of business – online, in stores, or on the street. But there is another element of these laws that extends into the boardroom and one that is often overlooked: Section 8 of the Clayton Act. This statute prohibits what are known as “interlocking directorates,” or put plainly, situations where an individual or entity serves on the board or as an officer of two competing corporations. The governmental policy behind Section 8 rests on a desire to ensure that firms do not coordinate their activity through a common board member or officer.
Section 8 states that: “[n]o person shall, at the same time, serve as a director or officer in any two corporations [...] that are (A) engaged in whole or in part in commerce; and (B) by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws. Unpacking each element is crucial because Section 8 is a highly technical statute. The statute is interpreted by the antitrust enforcement agencies to apply not only to natural “persons” or individuals, but also to a “firm.” Thus, a violation can arise if one firm appoints different individuals to sit as its agents on the boards of two competitors. This sometimes arises in the private equity or hedge fund world where one fund will invest in multiple entities in a common industry – also known as competitors – and task individuals to serve as board members across these entities.
Moreover, Section 8 is a strict liability offense – that is, liability for a violation of Section 8 may attach no matter the intent behind or the effect of the interlocking directorate. Treble damages are theoretically available to any enterprising private plaintiffs who could use the fact of the interlock to search for potentially anticompetitive conduct between the competitors. Most commonly, however, the FTC/DOJ and private plaintiffs from a practical perspective simply seek an injunction to remove the interlock.
There are, however, a number of exemptions under the statute that may relieve any liability under Section 8. Specifically:
The statute does not apply to banks, banking associations, and trust companies, or to firms that are not engaged in interstate commerce.
The statute will not apply if each of the firms involved lacks capital, surplus and undivided profits of $36,564,000 or more in their last fiscal year. This amount is adjusted annually; be sure to consult counsel to determine the current applicable threshold.
The statute will not apply if the “competitive” sales of the interlocked firms fail to meet the following thresholds.
the competitive sales of either firm are less than $3,656,400 (amount adjusted annually);
the competitive sales of either firm are less than 2% of that firm’s total sales; or
the competitive sales of each firm are less than 4% of that firm’s total sales.
The statute defines competitive sales as “the gross revenues for all products and services sold by one corporation in competition with the other, determined on the basis of annual gross revenues for such products and services in that corporation’s last completed fiscal year.” Total sales are defined as “the gross revenues for all products and services sold by one corporation over that corporation’s last completed fiscal year.”
Notably, interlocking directorates that do not implicate Section 8 – either because they do not come within Section 8’s prohibitions, or because a specific exemption applies – may still be subject to liability under other antitrust laws that prohibit other types of improper collusion. For example, a director may serve on the boards of two companies that may not fall within the scope of Section 8, but due to her overlapping interests, that director may nonetheless facilitate an agreement between the companies not to poach each other’s employees. Such an agreement would be a violation of Section 1 of the Sherman Act, a separate antitrust statute that imposes significant civil and even criminal liabilities.
This was precisely what happened in 2013 when two major tech companies settled litigation alleging that a director who served on both company boards had struck a no-poach agreement between the two companies. Prior to the settlement, a district court had denied the companies’ motion to dismiss and reminded the parties that Section 8 liability “does not go so far as to provide complete immunity from antitrust scrutiny.” It is therefore important to keep in mind that dual-board service may create other antitrust issues, even in the absence of Section 8 liability.
Examples of Recent DOJ and FTC Activity
The antitrust enforcers remain vigilant in seeking out Section 8 violations both in the context of transactions under their review pending antitrust clearance and as a general matter of corporate hygiene. As an example, the head of the Justice Department’s Antitrust Division, Makan Delrahim, most recently stated that the Division would “certainly take action” where it discovers Section 8 violations, including any potential violation stemming from Comcast Corp.’s (Comcast) September 2018 appointment of three NBC Universal. Inc. (NBC Universal) executives to the board of directors at Hulu, LLC (Hulu).
For context, Comcast obtained merger clearance from the Antitrust Division in 2011 to acquire NBC Universal. However, the acquisition came with a regulatory caveat: Comcast entered into a consent decree with the Antitrust Division that imposed several requirements on the company that were intended to preserve competition in the video distribution market. Among them, Comcast agreed to relinquish management rights of its minority stake in Hulu.
In September of 2018, the last of the conduct remedies set forth in the consent decree expired, including Comcast’s mandated silence over Hulu management. After they expired, Comcast appointed the NBC Universal executives to Hulu’s Board. Delrahim has committed to looking into the matter, and remarked that “to the extent [the appointment] would raise [a Section 8 issue], [the DOJ] would actively enforce that,” making clear that the current Antitrust Division leadership supports a continued, robust enforcement of Section 8.
In another enforcement example, in July 2016, the DOJ required that a $1.5 billion transaction between Tullett Prebon Group Ltd. (Tullett Prebon) and ICAP plc (ICAP) be restructured to eliminate likely Section 8 violations. As the transaction was originally negotiated, ICAP would have owned nearly 20% of Tullett Prebon and had the right to nominate one member of Tullett Prebon’s board. Given that ICAP and Tullett Prebon would continue to compete after the transaction, the DOJ had serious concerns that ICAP’s ability to nominate a Tullett Prebon board member would create an interlocking directorate in violation of Section 8 of the Clayton Act. The revised agreement provided that ICAP would not own any part of Tullett Prebon after the transaction and would have no right to nominate a member of Tullett Prebon’s board of directors.
And as a final example of what can be at stake, the FTC waded into the Section 8 enforcement landscape several years ago when it investigated some of the most prominent tech companies for potential violations. Ultimately these (very public) investigations led to the resignations of: Google CEO Eric Schmidt from Apple’s board; Arthur Levinson from the Google board because of his own service on Apple’s board; and John Doerr from the board of Amazon because he was also a director of Google.
It is vital to take proactive steps to ensure compliance with Section 8. The Goodwin Antitrust team recommends you take the following actions to minimize the risk of Section 8 exposure.
Be sure to address the antitrust laws in your corporate compliance policies. This will ensure that all board members, officers, and employees are well aware of the law.
Perform a Section 8 compliance check at least yearly by asking your board members, officers, and employees if they serve on other boards.
Know who you are from top to bottom; be aware if any subsidiaries or affiliates compete with any other entities in which the company is also invested, whether directly or indirectly.
Be conscious of your firm’s identity. As a firm’s mission shifts or it acquires or expands into new product lines, it may become newly competitive with other firms. Section 8 violations certainly can emerge as these shifts take place.
In any transaction where board seats may shift, be sure to add a Section 8 check to the closing checklist.
Be mindful that even if there isn’t a technical violation of Section 8, there could be other liability. For example, dual-board service could present a conflict of interest, or facilitate improper conduct that violates other antitrust laws.
 The DOJ and FTC share enforcement of the antitrust laws.
 The complete text of Section 8 of the Clayton Act is available online, although the FTC updates the applicable financial thresholds annually.
 United States v. eBay, Inc., 968 F. Supp. 2d 1030, 1036 (N.D. Cal. 2013).
 Hearings on Oversight of the Enforcement of the Antitrust Laws Before the Subcomm. on Antitrust, Competition Policy and Consumer Rights, 115th Cong. (Oct. 3, 2018).
 Press Release, United States Department of Justice, “Tullett Prebon and ICAP Restructure Transaction after Justice Department Expresses Concerns about Interlocking Directorates” (July 14, 2016).