Last week the Federal Trade Commission published its annual revision of the interlocking directorates thresholds under Section 8 of the Clayton Act. The new thresholds became effective on January 26, 2016.
Section 8 prohibits a “person” from serving as an officer or director of corporations that compete with one another in the marketplace, unless that competition is very limited. Note, however, that it also applies in situations where two different individuals represent the same corporation and serve on competitors’ boards. For example, a venture capital firm may violate the law by having a representative serve on the boards of two competitors in which it has an interest.
The existence of an interlock prohibited by Section 8 is a per se violation – which means that no defenses may be offered where an illegal interlock is established. It is therefore important to be cognizant of any potential Section 8 issue as well as the current applicable thresholds.
Under the updated thresholds for 2016, a “person” cannot serve as officer or director of any two corporations if:
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the “capital, surplus, and undivided profits” of each corporation exceeds $31,841,000; and
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the corporations are competitors “by virtue of their business and location of operation.”
Interlocks are allowed where:
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the competitive sales of either corporation are less than $3,184,100; or
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the competitive sales of either corporation are less than 2% of the corporation’s total sales; or
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the competitive sales of each corporation are less than 4% of that corporation’s total sales.
A Section 8 enforcement action may be brought by the federal antitrust agencies and a private right of action also exists for Section 8 claims. Companies and individuals should, therefore, keep Section 8 considerations in mind when considering the appointment or undertaking of an officer or director position, and in evaluating current positions. This is particularly true for venture capital and private equity firms that may have portfolio companies that compete with one another.
