Over the past year, the U.S. Department of Justice’s Antitrust Division has renewed enforcement efforts against “interlocking directorates” that violate Section 8 of the Clayton Act.  This provision prohibits directors and officers from simultaneously serving on the boards of competitors, subject to limited exceptions. The concern is that these arrangements allow competitors to exchange competitively sensitive information or coordinate business decisions, potentially harming competition. 

The Government’s new scrutiny of interlocking directorates

Until recently, Section 8 was frequently overlooked and rarely enforced. In an April 2022 speech, Assistant Attorney General for Antitrust Jonathan Kanter announced the DOJ is “ramping up efforts to identify violations across the broader economy” and “will not hesitate to bring Section 8 cases to break up interlocking directorates.” On October 19, 2022, the DOJ shared that seven directors resigned from corporate board positions in response to concerns by the Antitrust Division that their roles violated Section 8.¹ Recently, on March 9, 2023, the DOJ disclosed that five more directors resigned from boards and one company declined to exercise board appointment rights in response to Section 8 enforcement efforts by the Antitrust Division.² According to Kanter, “Enforcement of Section 8 will continue to be a focus for the division just as Congress intended.”³ On March 31, 2023, during a panel discussion, he asserted that the DOJ's recent crackdown on interlocking boards is "probably the most effective way of deconcentrating the United States economy today."⁴

Where Section 8 does—and does not—apply

Although it is generally legal for directors to serve on the boards of different companies, a Section 8 violation may occur when a director serves on the boards of two or more companies that are competitors “by virtue of their business and location of operation” such that an agreement between them to limit competition would violate the antitrust laws.⁵ The statute also prohibits any one company from appointing two different people to sit as its agents as officers or directors of competing companies.”⁶

Notably, Section 8’s prohibition on overlapping directorates applies only to companies with more than $45,257,000 in “capital, surplus, and undivided profits.”⁷  There are also exceptions to liability that apply where competition between the companies is de minimis. Competition is considered de minimis if it meets any of these three criteria: (1) the competitive sales of either company are less than $4,525,700; (2) the competitive sales of either company represent less than 2% of that company’s total sales; or (3) the competitive sales of each company are less than 4% of that company’s total sales.⁸ Finally, there is a one-year grace period following an event that creates interlock.⁹

Exposure associated with Section 8 investigations

Section 8 violations are per se violations, meaning the government need not prove actual anticompetitive effect to establish a company’s liability. The government does not, however, impose any monetary penalty solely for violating Section 8. Instead, the result of Section 8 liability is typically an order to end one of the interlocking board or officer positions. But government investigations can be expensive, and if the DOJ or Federal Trade Commission uncovers an interlock that caused an actual reduction in competition, significant damages could be imposed under one of the other antitrust statutes.  

In addition, private plaintiffs can sue for a Section 8 violation. Although we are not aware of any cases awarding damages to a private plaintiff, plaintiffs’ class action attorneys actively monitor FTC and DOJ actions under Section 8. If a Section 8 violation, particularly if combined with other allegedly anticompetitive conduct, were to result in a reduction in of competition, the Section 8 violation could be combined with allegations of other anticompetitive conduct and expose the company to expensive private antitrust litigation.

Steps to mitigate the risk of Section 8 enforcement

Companies should keep Section 8 in mind as they make governance decisions going forward and analyze existing arrangements for compliance. Given the DOJ’s and FTC’s recent enforcement efforts in this area, we recommend the following to minimize the risk of a Section 8 violation:

• Review current board memberships held by company employees and representatives for potential Section 8 exposure;
• Update your antitrust compliance program to provide a mechanism for tracking changes to board membership;
• Even where competition appears de minimis, consider whether an overlapping director or officer should recuse themself from making decisions that relate to a competitor or potential competitor;
• Consult antitrust counsel to evaluate the risks posed by a specific instance of interlocking directors or officers.

¹ DOJ Press Release, Directors Resign from the Boards of Five Companies in Response to Justice Department Concerns about Potentially Illegal Interlocking Directorates, U.S. Dep’t of Justice (Oct. 19, 2022), https://www.justice.gov/opa/pr/directors-resign-boards-five-companies-response-justice-department-concerns-about-potentially.

² DOJ Press Release, Justice Department’s Ongoing Section 8 Enforcement Prevents More Potentially Illegal Interlocking Directorates, U.S. Dep’t of Justice (Mar. 9, 2023), https://www.justice.gov/opa/pr/‌justice-‌department-s-ongoing-section-8-enforcement-prevents-more-potentially-illegal.

³ Id.

⁴ Michael Acton, US DOJ crackdown on interlocking boards ‘probably most effective way' of deconcentrating economy, Kanter says, MLex (Mar. 31, 2023).

⁵ 15 U.S.C. § 19(a)(1)(b).

⁶ Federal Trade Comm’n, Competition Matters Blog, Interlocking Mindfulness (June 26, 2019), https://www.ftc.gov/enforcement/competition-matters/2019/06/interlocking-mindfulness.

⁷ 15 U.S.C. § 19(a)(1); Revised Jurisdictional Thresholds for Section 8 of the Clayton Act, Fed. Trade Comm’n (Jan. 23, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/p859910-secn_8-new-hsr-thresholds-2023.pdf.  

⁸ 5 U.S.C. § 19(a)(2); Revised Jurisdictional Thresholds for Section 8 of the Clayton Act, Fed. Trade Comm’n (Jan. 23, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/p859910-secn_8-new-hsr-thresholds-2023.pdf. 

⁹ 5 U.S.C. § 19(b).