In 2009, Google and Apple garnered many accolades as two of the preeminent companies in the world, both in terms of sales and market value.[1] Forbes ranked them in the top 200 global companies.[2] Although their rankings in 2009 pale in comparison to their recent rankings,[3] the meteoric rise of both companies seemed predictable when taking a glance at their earnings per share growth percentage and revenue growth percentage in the three years prior to 2009.[4] The increase in yearly revenue may easily be explained away as both companies made breakthroughs in the technology sector at the end of the decade.[5] However, any time a company produces exceptional year-to-year growth it will draw the attention of federal agencies charged with regulating misconduct.[6]
With the enormity of antitrust violations that may arise, antitrust enforcers[7] are keen to any exchange of information between Google and Apple because they compete in common industries.[8] For example, in early 2009, as a direct warning, the new head of the Antitrust Division of the Justice Department, Christine A. Varney, targeted Google as a source of antitrust concerns because of its near monopoly on certain industries, such as Internet search and advertising.[9] Those admonitions make one wonder why antitrust regulators sought to target the relationship between Apple and Google using one of the “weaker” enforcement tools available in their arsenal—Section 8 of the Clayton Act.[10]
This Note addresses regulators’ lax enforcement of Section 8 of the Clayton Act (Section 8), which covers interlocking directorates, and the Act’s insufficient remedies.[11] Section 8’s purpose is to deter future anticompetitive conduct,[12] but the remedies that are currently utilized to achieve that purpose have been a failure. Investigations of Section 8 violations rarely lead to major confrontations between companies and the antitrust regulators (or private actors).[13] An interlocked director or officer usually steps down from their seat on the board of directors of the competitor if there is potential for a Section 8 violation rather than “face a lengthy investigation or a bruising legal fight.”[14] This has led many commentators to wonder why Section 8 is under-enforced and under-penalized,[15] even with empirical data that show the prevalence of interlocking directors in the twenty-first century.[16] Along the same line of thought, many wonder why antitrust regulators routinely wait for private parties to bring suit under Section 8 when the opportunities for collusion are enormous.[17] Compounding the problem is the hefty cost and time associated with antitrust litigation, even with the cost-shifting provisions in many sections of antitrust laws.[18] Smaller businesses are deterred from bringing Section 8 claims because they may not have the capital to withstand the added expense to their business.[19] Furthermore, even if a Section 8 action is brought, large corporations have taken solace in knowing the most that regulators have accomplished to date is the removal of the interlocked director, otherwise known as an injunction.[20]
To put interlocking directorates into context, consider again the 2009 example of a potential Section 8 violation between Apple and Google. The Federal Trade Commission (FTC) started a Section 8 investigation into common directors between Apple and Google—more specifically, of the position held by Eric Schmidt,[21] who at the time was Chief Executive Officer (CEO) of Google and a sitting Apple board member.[22] Schmidt was hired as the CEO of Google in 2001,[23] and had served on Apple’s board since 2006.[24] At the time Schmidt joined the board of Apple, he made comments about merging the two companies and calling it “AppleGoo,” citing the compatibility of corporate cultures.[25] Not until May 2009 did any antitrust scrutiny befall this relationship.[26] During Schmidt’s time on both boards, Apple released its iPhone, and Google made its intentions known that it wished to expand its online advertising empire into mobile phones.[27] Furthermore, Schmidt stated that he often had discussions with Steve Jobs, then-CEO of Apple, about Google’s Chrome web browser (which is in competition with Apple’s Safari), as well as its Android mobile operating system.[28] With billions in revenue, any antitrust impropriety by the two companies not only has the opportunity to knock out smaller competing companies, but also larger corporations, especially their common competitor—Microsoft.[29] Months after the start of the FTC investigation—in August 2009—Schmidt stepped down from the board of Apple, stating that it was the right thing to do.[30] Although the FTC stated it was continuing its investigation on other interlocks within Apple, no other update was provided by the FTC on other potential Section 8 violations.[31]
To some, it may be too speculative to suggest that any collusion actually occurred,[32] but this Note attempts to provide the point of view of those sitting outside the board room of how interlocking directors may be seen as a collusive practice, warranting harsher sanctions. In having stricter Section 8 sanctions, antitrust enforcers will be able to accomplish the statute’s true purpose.[33] Section 8 has been a seldom covered topic, with few cases to give guidance on its interpretation.[34] Part I provides the historical context that led to the creation of Section 8, along with its major 1990 amendments. Part II shows empirical data on the prevalence of interlocking boards in the United States, and antitrust enforcers’ under-enforcement of Section 8. Part II analyzes the advantages and disadvantages of interlocking directorates. Finally, Part III proposes solutions, in the form of sanctions, that regulators should consider for a more effective Section 8 enforcement policy, which keeps deterrence as its main objective.
Interlocking directorates can be understood as organizational connections between corporations where these corporations—directly or indirectly—share a common board director or officer.[35] Interlocks are regulated because they create an opening for companies to breach antitrust laws behind closed doors.[36] As one expert has noted: interlocks in and of themselves may not necessarily seem harmful to competition and indeed may produce procompetitive benefits.[37] Nevertheless, unfair advantageous opportunities can arise because of the involvement of competitors, and the favorable circumstances that help to facilitate collusion or establish or maintain “tacit or oligopolistic coordination.”[38] With the evolution of our understanding of boardroom discussions, and constant changes in the market and economies around the world, interlocking directorate statutes have become a common practice in the antitrust laws of many nations.[39] In the United States, it took many years, failures of the antitrust laws, and amendments before interlocking directorates were codified into American law.[40]
A. Failures of the Early Sherman Act
The American market economy has been, and continues to be, one of the greatest creations of human history.[41] Before the passage of the modern antitrust statutes—the Sherman, Clayton, or the FTC Acts—America and its constituents were well-suited socially, politically, and economically[42] to embrace the competitive free-market economy (which we now know as laissez faire) outlined by Scottish philosopher Adam Smith in his seminal work, The Wealth of Nations.[43] Smith had a pessimistic view of antitrust law.[44] Indeed, he did not think individuals could be trusted to promote competition.[45]
Antitrust law, either because of Smith or organically, has conventionally been deeply suspicious of companies coordinating their business practices and decision-making, which may be seen as an indicator of collusive behavior.[46] Smith observed, “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”[47] That phrase has been cited ad nauseam by antitrust proponents to justify all manner of interventionist mischief. Those same advocates, whether carelessly or recklessly, rarely state Smith’s next sentence: “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice.”[48] In other words, Smith held the belief that the government could do nothing to prevent such assemblies, but he also suggested that the government should do nothing to encourage or facilitate them.[49] This view mirrors “Smith’s more general disapproval of any form of integrated production (including the corporation), which restrict[s] the freedom of the ‘“workman”’ or ‘“tradesman’” and the discipline that competition impose[s] on them personally.”[50]
The idea of an unrestrained market expressed by Smith, which may have seemed like a novel idea at the time, did not give full weight to the intrinsically selfish nature of individuals when it comes to competition and the survival of their businesses.[51] As Justice Louis Brandeis predicted, Smith’s ideology has a glaring flaw: when individuals are left to the guidance of an “invisible hand,”[52] the market is destined to be dominated by monopolies.[53] What was to be a departure from the mercantilist approach of Smith’s time in Great Britain during the eighteenth century for the “greener pastures” of a free-market economy in fact led to some of the largest monopolies in the nation’s history.[54] For Justice Brandeis, these monopolies (or the trusts that created them) did not sprout due to a natural growth that relied on market efficiency; to the contrary, he believed they were the consequence of manipulated human interference.[55]
By 1890, the Fifty-first Congress, feeling the pressure from the public,[56] assembled to debate a bill to combat these burgeoning trusts and promote competition.[57] However, as genuine as the goal may have seemed, and as uniform as the vote was,[58] it is worth questioning whether delegates had the requisite knowledge to encompass all of the trade practices into one piece of legislation.[59] Surprisingly, and maybe foolishly, Congress attempted to combat competition without mentioning the word “competition” in the Sherman Act.[60] To the defense of the delegates, the practice of “competition” was not easily definable,[61] and during the late nineteenth century, the complications presented by trusts were startlingly limited.[62] The lack of experience in constructing a wide-ranging antitrust regulation and the generality of the language in the Sherman Act[63] led many scholars to label it a failure,[64] especially when viewing it through the lens of its early interpretation by the Supreme Court and its rather intermittent enforcement.[65]
In 1895, the first Supreme Court case to consider the applicability of the Sherman Act seemed to demolish any hope at a meaningful antitrust statute, especially in regulating trusts.[66] In United States v. E.C. Knight, Co., the government alleged that the American Sugar Company violated the Sherman Act by purchasing the stock, machinery, and real estate of its four major competitors, and thus monopolizing the manufacture and sale of refined sugar in the United States and leaving it in charge of coordinating the price of sugar.[67] Chief Justice Fuller, writing for the majority, held that the Sherman Act was intended to apply only as far as the federal government’s commerce powers allowed. In his view, the conduct at issue in E.C. Knight involved the manufacture of sugar, not commerce, and that regulatory control over the manufacture of a product did not fall within the federal government’s commerce powers.[68] Thus, the Court strictly bifurcated all economic activities into two categories: manufacturing and commerce. Manufacturing involved the “transformation . . . of raw materials into a change of form for use[,] . . . [whereas commerce involved] [t]he buying and selling and the transportation incidental thereto.”[69] The implication was that the Sherman Act did not apply to any contracts, combinations, or conspiracies involved only in the manufacture of a product.[70]
In another example, at the time of consideration of the Clayton Act, the Supreme Court issued its 1911 ruling in the Standard Oil Co. of New Jersey v. United States case,[71] which many in Congress interpreted as the judiciary further weakening the Sherman Act.[72] Chief Justice White’s majority opinion for the Supreme Court in Standard Oil adopted a significantly broad rule of reason analysis.[73] According to the rule of reason analysis, only unreasonable or undue restraints of trade were illegal.[74] Applying the newly articulated standard, White found the defendants in Standard Oil guilty of engaging in unreasonable restraints of trade, thus violating the Sherman Act.[75] Accordingly, the Court ordered the dissolution of Standard Oil.[76] Critics condemned the decision for its broad analysis, hinting that it would lessen the Sherman Act’s applicability and increase the discretion of judges in its interpretation.[77] Further, critics accused the new standard of being unclear.[78] These critics were afraid the broad standard of the Sherman Act would prove futile in being a strong countermeasure to trusts, combinations, and monopolies.[79] “As a result, numerous congressional proposals urged the creation of a business court or expert commission that would license the whole range of business decisions from capitalization to . . . business practices.”[80] Congress viewed the early Sherman Act as nothing more than a “‘method of regulation by lawsuit’”—too vague to have any serious application.[81]
It was thus clear that the courts were given broad interpretive powers to mold the Sherman Act according to how they understood the statute to apply and their own judicial experience.[82] However, as cases made their way to the Supreme Court, another defect of the Sherman Act emerged: the holdings handed down by the Justices strayed from the strictures of antitrust law and often delved into addressing constitutional questions.[83] E.C. Knight, for example, probed into the separation of powers and interpretation of the commerce powers.[84] The combination of an ambiguous statute leaving enormous discretionary power to the judiciary and the concentration on constitutional interpretation in antitrust issues provided little guidance to companies looking to expand their business, or simply trying to avoid being sued for violating the Sherman Act.[85]
As easy as it may be to put the fault on the judiciary for the shortcomings of the early Sherman Act, some commentators suggested that courts were simply carrying out their primary responsibility: to interpret statutes. These commentators have further noted that any failings resulting from the ambiguity of the Sherman Act should be placed on its creator: Congress.[86] As Donald Smythe wrote, “[t]here was nothing wrong with the Court’s interpretation of the law; it was the law that was wrong, and Congress needed to change it.”[87]
B. History and Purpose of Section 8 of the Clayton Act
Congress enacted the Clayton Act because it felt certain defects and omissions in the Sherman Act had to be remedied with more concrete provisions.[88] Notwithstanding the sweeping and apparently all-inclusive prohibitions of the Sherman Act,[89] new legislation was thought necessary both because of the judicial refusal to find certain conduct to be violative of the Sherman Act[90] and the recognition of additional anticompetitive conduct which had not been considered detrimental before.[91] Section 8, concerning interlocking directorates, represented an attempt to address such conduct.[92]
Section 8 of the Clayton Act[93] was marred in political agenda even before its passage in 1914.[94] As early as 1908, Democratic platforms called for a law that would prevent the duplication of directors among competing corporations.[95] With the subject of trusts fully entrenched as the core issue of the 1912 campaign, President Woodrow Wilson emphasized the erosion of personal relationships between individuals that broke down with the development of the giant business corporation.[96] According to his Democratic platform, “[t]he hierarchical structure of the corporation centralized the power of decision in a few hands,”[97] and the remaining individuals were just employees with little chance for advancement.[98]
Due to the pressing concerns surrounding “big business,” Congress conducted investigations into interlocking directors of the major industries of the time: banks, manufacturing corporations, and railroads.[99] In one of the congressional committees, the Stanley Committee, an investigation revealed that major officers and directors of the United States Steel Corporation, owners of several railroads, were also directors in twenty-nine other railroad systems.[100] The Pujo Committee, focusing on financial institutions, revealed that individuals at J.P. Morgan & Co. held seventy-two directorships in forty-seven of the greater corporations, and key individuals at the First National Bank of New York and National City Bank of New York held forty-six directorships in thirty-seven of the greater corporations and thirty-two directorships in twenty-six of the greater corporations, respectively.[101]
One of the primary opponents of interlocking directors was Justice Brandeis.[102] Serving as President Woodrow Wilson’s antitrust advisor, Justice Brandeis had tremendous influence in sparking Congress’s interest in pursuing legislation regulating interlocking directorates.[103] Justice Brandeis reasoned that when influential individuals serve on the same corporate boards, it leads to a host of problems including conflicts of interest, collusion, and market disruptive information exchange.[104] In his view, all interlocking directorates—regardless of the business sector—should be forbidden.[105] Despite Brandeis’s insistence on a broad prohibition on interlocks,[106] the House of Representatives heard arguments on House Bill 15657,[107] making illegal (1) vertical interlocking relationships between common carriers and other companies with which carriers might do business; (2) horizontal interlocks among banks, banking associations, and trust companies that had deposits, capital, surplus, and undivided profits of more than $2,500,000 or which were located in the same town if it had more than 100,000 inhabitants; and (3) horizontal interlocks between any two or more corporations other than common carriers, if the corporations were competitors.[108]
At the Senate hearings, substantial changes were made to the bill, including (1) elimination of the entire section concerning interlocking directorates that involved banks and trust companies;[109] (2) removal of the monetary fine of $100 per day, or imprisonment up to one year; and (3) striking out all criminal penalties for interlocking directorates.[110] Criminal penalties were a hot topic of debate as some senators saw them as a key to deterring corporations from instituting interlocking directors.[111] Section 8, as it was enacted on October 15, 1914, retained a general prohibition against an individual being a director of two or more competing corporations, but required at least one of those corporations to have more than one million dollars’ worth of capital, surplus, and undivided profits.[112] Ultimately, Section 8, as it was passed, eliminated all criminal penalties.[113]
C. The 1990 Amendments—The Current Section 8
Section 8 has been amended seven times[114] since its enactment, with the last major amendment coming in 1990 (the 1990 Amendments). The 1990 Amendments substantially changed Section 8 such that the previous amendments remain nothing more than historical context.[115]
One of the substantial changes to Section 8 under the 1990 Amendments[116] was raising the jurisdictional threshold to ten million dollars.[117] This exponential increase reflected Congress’s belief that the one million dollar threshold brought within the statute’s purview businesses that were too small to have a significant impact on competition.[118] No prior amendment—for more than sixty-five years—considered an increase to the jurisdictional threshold.[119] The 1990 Amendments relating to the jurisdictional threshold provided for an indexing provision.[120] Moreover, the 1990 Amendments required that both corporations sharing a common director exceed the ten million dollar threshold before the interlock was prohibited.[121]
The impact of the increased threshold can be illustrated by Protectoseal Co. v. Barancik.[122] In 1971, Barancik, owner of one of Protectoseal’s competitors, bought 16.2% of Protectoseal’s shares.[123] Barancik used those shares to obtain a board seat as a director of Protectoseal.[124] Other board members of Protectoseal feared that having Barancik as a board member would make him privy to confidential trade secrets that he might use to the advantage of his own company, Justrite Manufacturing Company.[125] The board members of Protectoseal served Barancik with a written demand to resign from the board of directors.[126] Barancik refused, prompting the board members to file a Section 8 claim against him.[127] Upon finding that Barancik’s company, Justrite Manufacturing Company, had capital, surplus, and undivided profits totaling more than one million dollars,[128] the Northern District Court of Illinois issued a permanent injunction barring Barancik from serving as one of Protectoseal’s directors and from voting any of his shares for the election of directors.[129] After the passage of the 1990 Amendments to Section 8, Barancik requested that the court vacate the injunction, effectively allowing him to return to the board of directors.[130] The Seventh Circuit granted Barancik’s request, noting that it would be an abuse of discretion to keep the injunction in place when a change in law authorized what was once forbidden.[131]
A crucial addition to the 1990 Amendments were the three de minimis exemptions that removed certain interlocks from the purview of Section 8.[132] The three de minimis thresholds in the bill were overlapping sales of either corporation below one million dollars, overlapping sales of either corporation less than two percent of its sales, and overlapping sales of each corporation less than four percent of its sales.[133] Prior to the 1990 Amendments, case law differed as to whether the statute should be interpreted to include de minimis exceptions.[134] The effect of this uncertainty was described by Representative Feighan, one of the co-sponsors of the bill amending Section 8: “Many U.S. corporations have had difficulty recruiting top-quality business professionals—especially minorities and women—to serve on their boards because these individuals are already serving on another board which has an overlap, albeit slight.”[135] Although legislators agreed that certain de minimis exceptions were needed, they were unsure whether the exceptions should incorporate a market share test or a test based on whether the competitive overlap between the interlocked firms exceeded some percentage of a firm’s sales, or both. Based on advice from many experts,[136] the bill that was ultimately enacted initially included both a market share test and a test based on whether the competitive overlap exceeded some percentage of a firm’s sales.[137] A “gateway” provision would permit the interlock if the corporations could merge under Section 7 of the Clayton Act; if that test could not be satisfied, the three de minimis provisions could still exempt the interlock.[138] Although the FTC and a number of commentators supported the merger-review standard, the DOJ expressed concern about the workload imposed by that standard.[139]
The House of Representatives considered but rejected de minimis tests based on market shares, even though a test based on only the competitive overlap not exceeding a percentage of sales could permit an interlock between two firms with a significant combined market share in certain competing products.[140] In the end, the House chose not to impose any type of market share test.[141]
In the 1990 hearings on the proposed amendments extending coverage of the interlock prohibition to officers, a recommendation was made to expand the definition because of concern that a corporate board could delegate the appointment of an officer and thus avoid application of the statute.[142] Some commentators opposed this expansion because there was not substantial evidence that interlocked officers posed any competitive harm to the market.[143] Congress ultimately went forward with including interlocked officers as a violation of Section 8.[144] Congress believed that officers, like directors, presented the same opportunity for antitrust impropriety if allowed to sit on the board.[145]
“Officer” is expressly defined under the statute as someone “elected or chosen by the Board of Directors.”[146] Thus, an action by the Board of Directors is required.[147] Simply granting an employee an honorific title is not sufficient to bring that employee within the statutory definition of “officer.”[148]
A. Under-Enforcement Despite the Large Number of Director Interlocks
Section 8, as it was finalized in 1914, has been the target of sharp criticism since its enactment.[149] Antitrust regulators soon realized that, despite its per se character, Section 8 was so fraught with loopholes and so easily evaded that it was hardly worth the allocation of resources required to enforce it.[150] Attempts were made to cover up many of the gaps,[151] but the problem of under-enforcement remained because the current remedies did not have enough of a deterrent effect on large companies. Viewed another way, the sanctions for a Section 8 violation were worth the risk of having interlocked directors in place despite its illegality.
Officials have refused to consider changes to Section 8, due to the lack of data on the prevalence of interlocking directorates and their negative effects.[152] However, their hesitance to overhaul Section 8 seems to stem from the unknown effects that may result from any changes to Section 8, rather than their outward cry for a lack of data.[153] Being anxious of the unknown should not be a strong enough reason to resist an overhaul of Section 8 though, if only because the antitrust regulators rarely bring Section 8 cases forward.[154]
To the hardcore data-driven commentators, an analysis by USA Today and The Corporate Library reveals that the boards of the nation’s leading companies have a startling amount of overlap.[155] Emblematic of the data is the fact that eleven of the fifteen largest companies, including Pfizer and Citigroup, have at least two board members who sit together on another board.[156] Furthermore, of those fifteen companies, four have at least two board members in common with another of the top-tier firms.[157] Moreover, in 2018, it was revealed that seventy-eight percent of the fifty largest companies in the S&P 500 have at least one board connection with another company in the top fifty.[158] The number of interlocks gets much larger and more common as the scope is expanded beyond the top fifty.[159] This data brings forth the many arguments as to why change to Section 8 is needed and only serves to emphasize Section 8’s lack of effectiveness. Applied to rival corporations, such as Apple and Google, interlocking directorates tend to the suppression of competition and to violations of the other antitrust laws.[160]
Section 8 has primarily been enforced by in-house counsel of corporations.[161] Corporate counsel, like the antitrust regulators, often do not see it as necessary, or worth the time or capital, to bring a Section 8 claim, and the violators continue with the illegal practice.[162] “This sleepy enforcement effort has been noted by the courts: In the second of its only two decisions regarding Section 8, . . . the Supreme Court rejected a proffered interpretation of the law” where the government “had not attempted to enforce that interpretation for over [sixty] years.”[163] The shortage of Section 8 interpretation by the courts, although due to a lack governmental intervention, has left corporations wanting for guidance.[164] Without a more robust practice by antitrust enforcers in bringing Section 8 actions, courts will be hard-pressed to modernize their interpretation of Section 8.[165]
The case law on Section 8 violations is sparse, at times at no fault of the interlocked companies.[166] When antitrust enforcers begin an investigation the objective seems to be finding a short-term, immediate solution, a primary objective of Section 8.[167] A small number of Section 8 cases have been filed since 1914, and of those filed cases, only a handful have reached a decision on the merits.[168] The FTC, wanting to avoid litigation, often settles Section 8 cases by entering into a consent order with the interlocked companies.[169] The FTC typically colors the consent order in loose terms, avoiding any reference to guilt or innocence so the violators are given that extra motivation to enter into the order.[170] The FTC loses its deterrence objective by structuring consent decrees to deal with current violations at the expense of preventing future infractions.[171] By not reaching the merits, antitrust regulators do not establish precedent and build up Section 8 understanding. DOJ enforcement of Section 8 has followed a similar course.[172] The interlocked director or officer will often resign from one of the companies when an antitrust enforcer starts to look into their board membership.[173] These “coerced resignations” often spare “litigation expenses, potential monetary penalties in private enforcement actions, time, and adverse publicity.”[174] This intimidation-fueled enforcement has since given way to a more formal procedure substantially analogous to that followed by the FTC. When the DOJ Antitrust Division files an action to enjoin an illegal interlock, often times, the interlocked relationship will be disbanded through voluntary resignation by one of the connected directors.[175] After the resignation of one of the directors, the violators seek summary judgment on the ground that the case has become moot or that granting injunctive relief would prove unnecessary or ineffective.[176] The lawsuit is then converted into a hearing on the summary judgment motion.[177] If the court denies the motion, the parties can enter into a consent decree that contains an injunctive order.[178] If the opposite outcome results, the violators suffer minimal damage, only losing a direct channel of communication with the board of a competitor.[179] This course of action strips Section 8 of all its deterrent value as the DOJ’s focus is similarly shifted to remedying the current conduct, while avoiding safeguards for future possible violations.
The Clayton Act has set up “a scheme of dual enforcement,”[180] “whereby the FTC is granted the power to issue cease and desist orders barring violations of the prohibition on interlocking boards while private parties and the [DOJ] must seek relief in Article III courts.”[181] In enforcing the prohibitions of Section 8, the DOJ is limited to seeking injunctive relief, while private parties may seek either injunctive relief[182] or treble damages.[183] Private plaintiffs may seek monetary damages under the statute, however, no court has awarded such damages to a private party for an illegal interlock.[184] In Jicarilla Apache Tribe v. Supron Energy Corp.,[185] the case providing an in-depth analysis of the availability of monetary damages, the U.S. Court of Appeals for the Tenth Circuit set a high bar for plaintiffs: not only must they show a technical violation of Section 8, they must also either show a per se violation of the Sherman Act or proof of anticompetitive effects.[186] The heightened bar that the circuit court has set may be impossible to achieve without having an antitrust enforcer in the boardroom.
“Injunctions do not deter violations.”[187] The basic idea regarding compliance with an injunction is that if the expected cost of violation exceeds companies expected profits, they will be convinced to comply.[188] As Professor Louis Kaplow noted, “[o]ligopolists would hardly be encouraged to forgo large profits by the prospect that, if they were caught, they might have to desist from continuing to earn supracompetitive rewards in the future.”[189] With injunction being enforcers’ remedy of choice for Section 8 violations, it is no wonder why large companies are courageous enough to have common directors or officers.[190] The monetary cost—through the courts—associated with Section 8 violations to date has been zero dollars,[191] while the expected profit can best be defined as indeterminate.[192] The activities of a corporate boardroom are by their very nature secretive and virtually impossible to detect, so any profits gained by competing companies sharing information through common directors and officers will continue until an antitrust enforcer steps in.
B. The Benefits and Detriments of an Interlocked Board
Section 8 has many supporters and detractors. The concern over interlocks is simple: “when an individual simultaneously serves as an officer or director of two competing companies, he or she stumbles into a prime opportunity for collusion—for example, coordination of pricing, marketing, or production plans of the two companies.”[193] On the flip side, supporters of limited regulation on interlocking boards may argue that common directors allow a company to take advantage of the brightest individuals for the betterment of their business.[194] Both sides make compelling arguments, but this Note argues that interlocks’ benefits are fringe compared to the harm they may impose on the market.
Interlocks potentially create problems beyond the opportunity and temptation to collude.[195] Their harm centers around the principal-agent dilemma.[196] For instance, key individuals in a company may seek to maintain their control by selecting and retaining board members with experience on other passive boards and excluding individuals with experience on more active boards.[197] Additionally, shared interlocks may be “an indication of and a contributor to CEO entrenchment, and the higher compensation and lower turnover may follow from this entrenchment.”[198] Certainly, where there is director interlock, compensation has shown to be higher.[199] If directors and officers are acting in their own self-interest rather than in the interest of the corporation’s shareholders, interlocks can run afoul of the “invisible hand” that Justice Brandeis warned us about.[200] Consumers will have to bear the brunt effects of increased costs due to a decrease in competition.
Despite the opportunities to do harm to competition, interlocking directorates do have their supporters. The most general justification for permitting interlocks is that interference with the free selection of board directors is harmful to the company.[201] Beyond the general value in retaining freedom of choice in the talent market, certain benefits are obtainable only through the selection of a candidate that serves on another corporate board.[202] Interlocks do not benefit corporations merely by enabling anticompetitive practices that lead to supracompetitive profits: potential innocuous benefits to the corporation include monitoring, co-optation, legitimacy, and expertise.[203]
Companies may also co-opt sources of supply dependency through an interlock, such that business transactions are less risky.[204] That is, an interlock can help ensure that a company has the necessary resources for its business operations.[205] While this benefit has the potential to be exploited for anticompetitive or improper objectives, it is not intrinsically anticompetitive.[206] Furthermore, interlocks benefit companies in ways in which it is difficult to imagine any accompanying anticompetitive result.[207] For instance, interlocks may provide companies with the legitimacy and prestige necessary to acquire crucial financial resources.[208] In selecting individuals with connections to “other important organizations, the firm signals to potential investors that it is a legitimate enterprise worthy of [investment].”[209]
Research has, however, shown the superficial (and fringe, as compared to its downside) advantages of director interlocks to be lacking.[210] The reason for this is because it is difficult to discern whether “positive correlations” are due to the interlock or to “undetected anticompetitive behavior.”[211] However, studies have not shown a relationship between company profitability and director interlock between competitors.[212] For these reasons, it would be premature to attribute any benefits of interlocks to their existence without empirical data.
By definition, interlocking directorates have the effect of creating a restrictive scheme whereby only certain individuals occupy board seats. The corporate boardroom has traditionally been an “old boy’s club.”[213] By allowing loose enforcement of Section 8, society has cultivated a belief that non-diverse boards should be the norm. In deterring interlocks that present anticompetitive problems, board seats are opened up to women and minorities that have the requisite knowledge and skills to flourish as board members.[214]
The social policy favoring stronger enforcement of interlocking directorates has been around since Section 8’s inception.[215] President Wilson messaged to Congress the need to ban interlocks and how it would uplift American business by introducing “new leadership and new energy.”[216] Wilson believed that individuals who would rise to the top were not second rate.[217] “This was a direct assault on the major justification for interlocks, a denial that interlocking relationships were necessary to enable corporations to get the best [individuals].”[218]
Interlocking directorates are as simple as arithmetic: the more of them there are, the fewer positions there are for others to fulfill those seats. This is troubling when considering that board seats are commonly filled by white, elderly men.[219] Of the three thousand largest publicly traded companies in the United States, women occupy the board of only eighteen percent of those companies.[220] This is despite the fact that analytics have shown that a diverse board leads to higher profits.[221] In today’s world, a company obtains the benefits of a diverse board because it is more likely to reflect its customers.[222] Some of the benefits can be shown through better purchasing and buying decisions.
Interlocks create a sense of “ruling elites.” This ruling elite is achieved when an individual’s high-level position serves as an indicator of their job qualifications in similar roles.[223] When decisions are made through this narrow thinking, society creates a power imbalance in the corporate world, further compounded by the fact that political influence in the United States is uneven.[224] “[A]mong the disadvantaged who know only that their choices are not prevailing or that they lack influence, the line between a ‘ruling elite’ and uneven distribution of influence may seem academic and easily crossed.”[225] This provides evidence of the inequality in power that an interlocking directorate can create.[226]
Antitrust remedies serve two basic purposes: they deter and chastise violations of the antitrust laws and they encourage victims of violations to bring claims forward. [227] In bringing claims, victims trust that remedies in place will compensate them for any resulting loss. Antitrust remedies should deter potential violators from engaging in socially undesirable conduct without inhibiting socially desirable conduct.[228] They should give potential plaintiffs adequate incentives to find and prosecute violations, but not stimulate untoward prosecution of procompetitive conduct.[229] Finally, antitrust remedies should operate as efficiently as possible.[230]
In seeking appropriate deterrence of potential violators, it must first be recognized that antitrust laws have come to be applied to a wide variety of conduct, much of which entails both potential costs and potential benefits for society.[231] If antitrust remedies deter too broad a range of activities, potential social benefits will be lost, even though in many circumstances, benefits would far outweigh an activity’s costs.[232] Thus, remedies should take into account the likely cost and benefits of particular types of conduct to which they apply. For this reason, Section 8 should not be fully eradicated, but stronger deterrence measures should be put in place, like the adoption of the rule of reason or criminal penalties associated with any Section 8 violations.
Second, antitrust remedies should recognize that not all violators are caught.[233] This is the problem with Section 8 violations, as there is a shroud of silence protecting all information that is discussed in board meetings. Where socially undesirable conduct might go unnoticed, it is appropriate to increase the penalty for such conduct in order to deter it adequately.[234] That probability, however, is hard to quantify, and does not have to be represented through monetary damages. Any proposal must take into account that heavy penalties intended to deter potential violators may give private plaintiffs incentives to prosecute innocent conduct that merely resembles an antitrust violation.[235]
Officials have considered the idea of creating an international regime responsible for antitrust matters.[236] Being a live issue, officials must consider whether the most prevalent methods of dealing with interlocking directorates—injunctions—would be the most appropriate. In any case, the United States should attempt to revise Section 8 by calling for a rule of reason approach.[237] This method would allow for the correct level of enforcement and would prevent any erroneous removal of director interlocks.[238] If we think about including any harsher deterrents for Section 8 violations, such as criminal penalties, proposed below, then the rule of reason at least allows the alleged violator an opportunity to rebut any charges brought against them.[239] In other words, adopting a rule of reason analysis helps create a bridge to the harsher penalties, if they are warranted.
A contract, combination, or conspiracy that unreasonably restrains trade and does not fit into the per se category is usually analyzed under the rule of reason test.[240] This test focuses on the state of competition within a well-defined relevant market.[241] Under the rule of reason approach a court will weigh all the factual circumstances of each case to determine whether a certain competitive restraint is legal.[242] This approach, whereby courts are “checking off boxes” forces a court to consider so many factors that none are dispositive.[243] “The only certainty under the rule of reason is that courts will be required to engage in a complicated and prolonged investigation into market impact before deciding on the legality of a particular restraint.”[244] However, the approach provides little guidance to businesses trying to plan their conduct or to courts searching for helpful precedent.[245] Both plaintiffs and defendants will be more inclined to prolong litigation because of the rule of reason’s uncertain outcome. Indeed, the confusion generated by the rule of reason approach is “one of the more vexing problems of antitrust law.”[246] For these reasons, many will be skeptical about adopting the rule of reason.
Jurisdictions outside the United States have not, for the most part, adopted prohibitions on interlocking directorates between competitors akin to Section 8 of the Clayton Act.[247] A few countries, including South Korea[248] and Indonesia,[249] prohibit interlocks if they adversely affect competition. These countries do not follow the Clayton Act’s per se approach, but rather permit companies to justify the interlocks based on lack of competitive injury or a rule of reason approach.[250]
Key to the rule of reason is the method adopted in South Korea whereby companies that pass a certain threshold of assets or turnover must make a merger notification to the appropriate agency.[251] As of now, private corporations are the primary enforcers of Section 8.[252] Asking companies to essentially self-enforce the statute has not made a difference.[253] By adopting a similar method as in South Korea, the FTC or DOJ may be able to keep tabs on those large companies when a new interlock is formed whereby the opportunities for collusion would be ripe and could potentially produce anticompetitive conduct.
B. Sherman Act Section 1 or FTC Act Section 5
If adopting methods of foreign countries strikes a negative chord with some, a more homegrown remedy could be structured around existing antitrust laws. Section 8 operates in concert with other antitrust laws and regulatory regimes to address interlocking directorates.[254] Due to its rather rare enforcement, Section 8 has often been enforced in concert with Section 1 of the Sherman Act or Section 5 of the FTC Act.[255] For this reason, a solution may be to absorb Section 8 into the more commonly enforced antitrust statutes, which already have language that touch upon interlocking directorates. By clearing the books of laws that are rarely enforced and whose substance is covered in other statutes we resolve the problem of similar statutes creating unsound and differing interpretations.
Section 8 is designed to prevent “incipient violations of the antitrust laws by removing the opportunity or temptation to such violations through interlocking directorates.”[256] Thus, rather than confronting antitrust violations as they arise under the Sherman Act, Section 8 is intended to be preventative.
A director interlock may lead to trade restraints in violation of Section 1 of the Sherman Act by creating an avenue for illegal agreements between competitors to arise.[257] An interlocking director is presumably interested in increasing the profits of both companies on whose boards the individual sits, and reducing competition between the companies may help achieve this.[258] Even if no formal agreement to reduce competition results, an interlock may increase the exchange of competitive information between the competitors, which may lead to anticompetitive effects.[259] In this respect, Section 1 acts as a potential catch-all for interlocking directors. When there is seen to be an interlocking directorate between large corporations, the rule of reason will allow for a rebuttal as to why the connection does not restrict competition.[260] Since Section 1 adopts the rule of reason approach, any absorption into it will present many of the problems inherent in a rule of reason approach, including uncertainty and long-drawn out litigation.[261]
Additionally, certain interlocks are exempted from Section 8 where the competition between the affected corporations is deemed de minimis.[262] The statute exempts interlocks, even between competing companies, so long as their competitive sales fall below the statutory thresholds.[263] The exemption is designed to cover competitive overlaps which are not large enough (monetarily) to have a significant impact on competition.[264] Section 1 of the Sherman Act fills in this hole, as it applies regardless of the volume of commerce or percentage of sales involved.[265] As a result, where an interlock is exempt under the de minimis thresholds, companies remain subject to potential Section 1 scrutiny.
Under Section 5 of the FTC Act, the FTC has authority “to prevent persons, partnerships, or corporations . . . from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.”[266] The FTC has broad powers to proscribe unfair trade practices that conflict with the basic policies of the Sherman and Clayton Acts, even if the practices fail to violate the letter of these laws.[267] Moreover, the FTC “has power under [Section] 5 to arrest trade restraints in their incipiency without proof that they amount to an outright violation of . . . the antitrust laws.”[268] Thus, antitrust enforcement under Section 5 of the FTC Act is near identical to that under Section 8 of the Clayton Act in its prophylactic approach but is also broader in that it may prevent practices that have yet to evolve into clear violations of either the Sherman or the Clayton Act. However, one should be aware that this broadness itself will present a problem. By expanding it to reach violations before they evolve, we are in a sense eradicating Section 8 and adopting a wholly new standard. The issue with Section 8 is not that it exists, but that it has not achieved its purpose, and some might say adopting it into the broader Section 5 of the FTC Act will not remedy this concern.
Several cases have found Section 8 violations also to be violations of Section 5 of the FTC Act, so it may seem courts are looking past the broadness of Section 5 to remove interlocks. In Kraftco Corp.,[269] for example, the FTC found that a director’s simultaneous service on the boards of Kraftco and SCM[270] violated Section 8; and, insofar as it violated the “spirit and policy” of the antitrust laws, this interlock also violated Section 5.[271] In Borg-Warner Corp., one firm, Bosch, acquired a minority share of a competitor, Borg-Warner.[272] As a result of the transaction, two Bosch representatives became members of the Borg-Warner board. The FTC found the resulting interlock to violate both Section 8 and Section 5.[273] In one case, the FTC indicated that Section 5 might reach interlocks not subject to Section 8, such as those between potential competitors and between buyers and sellers.[274]
In replacing injunctions as the primary outcome of a Section 8 violation, courts should look to imposing fines or criminal sentences to achieve the deterrence that has been lacking. The notion of fines and criminal penalties is not a novel idea when it comes to Section 8, as both of those sanctions were discussed by the legislature before they were ultimately scrapped from the final statute.[275] Basic law enforcement theory suggests that the use of fines is often most appropriate to punish defendants because monetary penalties, by themselves, are not enough (in contrast to imprisonment and injunctions),[276] and most importantly for Section 8 purposes, “they deter behavior (which injunctions alone do not), and they may be calibrated to the extent of harm caused and the likelihood of detection.”[277] Since imprisonment as an outright punishment is socially costly—the resources that are devoted to run the prison system and the loss to the offender which is not matched by any direct social offset (unlike fines)—“it tends to be optimal not to use it unless monetary sanctions are insufficient.”[278] Imprisonment, especially in the United States, can nevertheless be important on account of the difficulty of detecting Section 8 violations, because it may provide an added incentive to comply with the law.
One matter to consider is whether fines and imprisonment should both be available. If we allow only one form of sanction, we run into the problem of whether the individual should be imprisoned or if the company should be fined. It may be more socially appropriate to impose a fine, as it is the less costly harm, but this only works if the fine is sufficient to have satisfactory deterrent effects.
In sum, it is possible to create a construct where Section 8 is imbibed with stronger sanctions that will prevent unlawful interlocks from being formed. However, before sanctions are imposed, Section 8 should be reconsidered in light of the rule of reason, as many foreign nations have adopted this successful method.
Section 8 has been in existence for over a century, but its purpose has yet to be fulfilled. Antitrust regulators have adopted a soft stance on interlocking directorates. Allowing anticompetitive interlocking directorates to occur creates a petri dish for possible antitrust violations to develop. Antitrust law provides for stronger sanctions than those currently being imposed on violators to date. For starters, we should adopt a rule of reason as the standard to analyze Section 8 claims and consider replacing injunctions—which do not work on their own[279]—with fines and imprisonment which will provide for the right amount of deterrence for would-be violators. The tools are all there—it is up to the legislature to fully utilize them.
[1] The Global 2000, Forbes (Apr. 8, 2009, 6:00 PM), https://www.forbes.com/lists/2009/18/global-09_The-Global-2000_Rank_2.html [https://perma.cc/CNB6-26GB] (as evidenced by their inclusion in Forbes’s list of top 2000 global companies); Bobbie Johnson, Apple Bucks Recession with Some of Best Financial Results in Its History, Thanks to New iPhone 3GS, Guardian (July 21, 2009, 5:29 PM), https://www.theguardian.com/technology/2009/jul/21/apple-financial-results [https://perma.cc/S6G6-QUWR] (“Apple today shrugged off its critics by announcing some of the best financial results in its history.”); Philip Michaels, 2009 in Review: The Year in Apple, Macworld (Dec. 31, 2009, 1:40 PM), https://www.macworld.com/article/1145373/2009_review_apple.html [https://perma.cc/6EZV-6VZR ] (“[I]t’s also safe to say that [Apple] may be a little sad to leave 2009 behind. After all, Apple had a really good year.” (emphasis in original)). See generally SEC, Form 10-K: Google Inc. (2010) (providing financial data for fiscal year ended December 31, 2009).
[2] The Global 2000, supra note 1. Apple and Google were ranked 113 and 155, respectively. Id.
[3] Andrea Murphy et al., Global 2000: The World’s Largest Public Companies, Forbes (May 15, 2019, 6:00 PM), https://www.forbes.com/global2000/#16251be4335d [https://perma.cc/8UTY-2ENH]; see also Global 500, CNN Money (July 20, 2009), https://money.cnn.com/magazines/fortune/global500/2009/full_list/index.html [https://perma.cc/U75P-48GE ] (Apple ranked number 253 in revenue and Google ranked 423). In 2019, Apple was ranked number six and Alphabet, Inc., the parent company of Google, was ranked number seventeen. Murphy, supra.
[4] See 100 Fastest-Growing Companies, Forbes (Aug. 31, 2009), https://archive.fortune.com/magazines/fortune/fortunefastestgrowing/2009/full_list [https://perma.cc/3H79-SLNJ]; see also Frank Fox, Apple’s Decade of Explosive Growth: 2001 to 2010, Low End Mac (May 1, 2011), http://lowendmac.com/ed/fox/11ff/apple-decade.html [https://perma.cc/B7XM-B9ZR].
[5] The first iPhone and iPod Touch were launched in 2007 and the first Android phone was launched a year later in 2008. Charles Arthur, The History of Smartphones: Timeline, Guardian (Jan. 24, 2012, 3:00 PM), https://www.theguardian.com/technology/2012/jan/24/smartphones-timeline [https://perma.cc/2AYT-98QU]; Chaim Gartenberg, The iPod Turns 15: A Visual History of Apple’s Mobile Music Icon, Verge (Oct. 23, 2016, 10:00 AM), https://www.theverge.com/2016/10/23/13359534/ipod-mini-nano-touch-shuffle-15-years-visual-history-apple [https://perma.cc/DR8G-V9FC].
[6] Juliette Garside, Google Confirms FTC’s Antitrust Probe, Guardian (June 24, 2011, 1:51 PM), https://www.theguardian.com/technology/2011/jun/24/google-confirms-ftc-antitrust-probe [https://perma.cc/3DKY-C4BY].
[7] All references of antitrust regulators or enforcers are to the Federal Trade Commission (FTC) and the Department of Justice (DOJ) Antitrust Division.
[8] Miguel Helft & Brad Stone, Board Ties at Apple and Google Are Scrutinized, N.Y. Times (May 4, 2009), https://www.nytimes.com/2009/05/05/technology/companies/05apple.html [https://perma.cc/67GZ-EFGB]; see Apple Inc. v. Samsung Elecs. Co., 801 F.3d 1352, 1369 (Fed. Cir. 2015) (Reyna, J., concurring) (noting that “Apple’s ‘iOS’ operating system competes with Google, Inc.’s ‘Android’ operating system”); Smartflash v. Apple, Inc., 621 F. App’x 995, 1002 (Fed. Cir. 2015) (Apple conceding that it is a competitor of Google); In re Search of Info. Associated with [redacted]@mac.com that is Stored at Premises Controlled by Apple, Inc., 25 F. Supp. 3d 1, 8 (D.D.C. 2014) (“[O]ne of Apple’s main competitors, Google . . . .); Jon M. Garon, Searching Inside Google: Cases, Controversies and the Future of the World’s Most Provocative Company, 30 Loy. L.A. Ent. L. Rev. 429, 431–32 (2010) (“Google has also become a prime developer of new productivity tools for the Internet, often in direct competition with . . . Apple as well as other Internet innovators . . . . In 2008, Google launched Chrome as a browser designed to compete with . . . Apple Safari . . . . Google is extending the Chrome brand into a netbook operating system, which it expects to launch in 2010, directly competing with the core products of . . . Apple.”); Michael A. Einhorn, Thinking Outside the Box: The Next Generation Moves in the Music Business, 56 J. Copyright Soc’y U.S.A. 201, 202 (2008) (“The list of Apple competitors include[] . . . Google . . . .”). There are also those that doubt whether Apple and Google truly compete in the same industry. For an interesting article arguing that Apple and Google do not compete in the same space, see Matt Weinberger, Google and Apple Don’t Really Compete and Never Have, Bus. Insider (May 31, 2015, 8:09 AM), https://www.businessinsider.com/google-and-apple-dont-compete-2015-5 [https://perma.cc/EP8K-748T]. Weinberger looks at the mission statements of both companies to make his arguments. Id.
[9] Helft & Stone, supra note 8; see also Chris Dannen, Google, Apple May Suffer Anti-Trust Action for Sharing Board Member, Fast Company (May 5, 2009), https://www.fastcompany.com/1278026/google-apple-may-suffer-anti-trust-action-sharing-board-members [https://perma.cc/RP8Y-UCYK]; Why Is Obama’s Top Antitrust Cop Gunning for Google?, WIRED (July 20, 2009, 12:00 PM), https://www.wired.com/2009/07/mf-googlopoly [https://perma.cc/Y4YT-3U4K]. It is not a surprise to see Varney target Google with such ferocity. In certain public forums, before her appointment, Varney stated, “Google has acquired a monopoly in Internet online advertising and that the company is quickly gathering market power in . . . an online computing environment in the clouds.” Andrea Agathoklis, In Their Own Words: Predicting Enforcement Under Varney and Leibowitz, Antitrust, Summer 2009, at 5, 10 (internal citation and quotation omitted).
[10] Robert B. Bell, Private Equity Firms: Choose Your Board Seats Carefully, Lexology (June 23, 2010), https://www.lexology.com/library/detail.aspx?g=30a9f3b3-8cf9-482d-ac83-9241e1beb260 [https://perma.cc/8H42-SVK9].
[11] 15 U.S.C. § 19(a) (2018). In its simplest terms, an interlocking director is a single individual sitting on the board of competing companies as a director or officer. Id.
[12] See infra note 89; see also United States v. Sears, Roebuck & Co., 111 F. Supp. 614, 616 (S.D.N.Y. 1953) (“[W]hat Congress intended by § 8 was to nip in the bud incipient violations of the antitrust laws by removing the opportunity or temptation to such violations through interlocking directorates.”).
[13] See Helft & Stone, supra note 8.
[15] See, e.g., J. Thomas Rosch, Comm’r, Fed. Trade Comm’n, Terra Incognita: Vertical and Conglomerate Merger and Interlocking Directorate Law Enforcement in the United States, Remarks Before the University of Hong Kong 17–19 (Sept. 11, 2009), http://www.ftc.gov/speeches/rosch/090911roschspeechunivhongkong.pdf [https://perma.cc/36SX-62KE]; see also James T. Halverson, Interlocking Directorates—Present Anti-Trust Enforcement Interest Placed in Proper Analytical Perspective, 21 Vill. L. Rev. 393, 398–400 (1976); J. Randolph Wilson, Unlocking Interlocks: The On-Again Off-Again Saga of Section 8 of the Clayton Act, 45 Antitrust L.J. 317, 317 (1976); see Helft & Stone, supra note 8.
[16] See infra Section II.A for data on the pervasiveness of interlocking directors in the United States.
[17] As of December 2012, the number of cases filed with the DOJ has increased while the number of investigations has decreased. The DOJ, and presumably the FTC, has concentrated a significant majority of its resources on criminal violations rather than civil conduct. ABA Section of Antitrust Law, Controlling Costs of Antitrust Enforcement and Litigation 6–11 (2012), https://www.americanbar.org/content/dam/aba/administrative/antitrust_law/2013_agenda_cost_efficiency_kolasky.pdf [https://perma.cc/37MC-JZY2]; see also Clyde Wayne Crews Jr., Nobody Knows the Cost of Antitrust Regulation, and That’s Bad, Forbes (Mar. 3, 2016, 4:39 PM), https://www.forbes.com/sites/waynecrews/2016/03/03/nobody-knows-the-cost-of-antitrust-regulation-and-thats-bad/#rp147e9a8831a2 [https://perma.cc/USG7-AKAF].
[18] Lawrence J. White, Private Antitrust Litigation: New Evidence, New Learning 149–61 (1988).
[19] Alan F. Blakely, Antitrust Issues for Lawyers Representing Small Businesses, 54 Mont. L. Rev. 226, 262–64 (1993). The likely result for small businesses is a lose-lose scenario of whether to pursue litigation or fall victim to a possible collusion that has resulted from common directors on the board of their competitors. Both outcomes may lead to the destruction of the business and to a large extent, a decrease in competition for consumers. Id.
[20] ABA Section of Antitrust Law, Monograph No. 10, Interlocking Directorates Under Section 8 of the Clayton Act 1–3 (1984) [hereinafter ABA, Interlocking Directorates].
[21] The FTC also looked into Arthur Levinson, who was the former Chief Executive of Genentech, a large biotechnology company. See Helft & Stone, supra note 8.
[23] See Richard Trenholm, Google’s Schmidt: ‘I Resigned from Apple Board for the Right Reasons,’ CNET (Oct. 16, 2014, 12:53 PM), https://www.cnet.com/news/i-resigned-from-apple-board-for-the-right-reasons-says-googles-eric-schmidt [https://perma.cc/2DLY-BKFU].
[24] Press Release, Apple, Google CEO Dr. Eric Schmidt Joins Apple’s Board of Directors (Aug. 29, 2006), https://www.apple.com/newsroom/2006/08/29Google-CEO-Dr-Eric-Schmidt-Joins-Apples-Board-of-Directors [https://perma.cc/7SBZ-VYE5].
[25] Alex Pham, Google CEO Leaves Apple Board as Companies Compete, L.A. Times (Aug. 4, 2009, 12:00 AM), http://articles.latimes.com/2009/aug/04/business/fi-google4 [https://perma.cc/58AU-EPVB].
[26] See Helft & Stone, supra note 8.
[27] See id. Google eventually released its first Android phone in 2008. See Arthur, supra note 5.
[28] James Cook, Eric Schmidt Explains How He Dealt with Being on the Apple Board While Working at Google, Bus. Insider (Oct. 16, 2014, 4:03 PM), https://www.businessinsider.com/eric-schmidt-explains-how-he-dealt-with-being-on-the-apple-board-while-working-at-google-2014-10 [https://perma.cc/8UFT-9VR6].
[29] “The cultures [of Apple and Google] were very compatible, both driven by innovation and a deep distrust, if not hatred, of common competitor, Microsoft.” Garon, supra note 8, at 439 (internal citations omitted).
[30] Press Release, Fed. Trade Comm’n, Statement of Bureau of Competition Director Richard Feinstein Regarding the Announcement that Google CEO Eric Schmidt Has Resigned from Apple’s Board (Aug. 3, 2009), https://www.ftc.gov/news-events/press-releases/2009/08/statement-bureau-competition-director-richard-feinstein-regarding [https://perma.cc/Q6UY-QR96]; see also Brad Stone, Google Chief Gives Up Board Seat at Apple, N.Y. Times (Aug. 3, 2009), https://www.nytimes.com/2009/08/04/technology/companies/04apple.html [https://perma.cc/G52V-WN9Z].
[31] Dan Frommer, FTC Still Investigating Apple, Google, Bus. Insider (Aug. 4, 2009, 8:10 AM), https://www.businessinsider.com/ftc-still-investigating-apple-google-2009-8 [https://perma.cc/5ME5-G3WB].
[32] Eric Schmidt has stated that whenever discussion came up where there may have been a conflict of interest, he would step out. See Cook, supra note 28.
[34] See Wilson, supra note 15. “Antitrust experts say the provision against ‘interlocking directorates,’ known as Section 8 of the act, is rarely enforced.” Helft & Stone, supra note 8.
[35] 15 U.S.C. § 19(a) (2018); Eric N. Fischer, Serving More than One Master: A Social Network Analysis of Section 8 of the Clayton Act, 41 Iowa J. Corp. L. 313, 314–15 (2015); Michael E. Jacobs, Combating Anticompetitive Interlocks: Section 8 of the Clayton Act as a Template for Small and Emerging Economies, 37 Fordham Int’l L.J. 643, 644 (2014).
[36] Rob Alport, UK: Interlocking Directorates: Looking for Signs of Collusion, Conflict of Interest and Overboarding, mondaq, http://www.mondaq.com/uk/x/853280/Directors+Officers/Interlocking+Directorates+Looking+For+Signs+Of+Collusion+Conflict+Of+Interest+And+Overboarding [https://perma.cc/L4RZ-T9DT] (last updated Oct. 11, 2019).
[37] See Benjamin M. Gerber, Enabling Interlock Benefits While Preventing Anticompetitive Harm: Toward an Optimal Definition of Competitors Under Section 8 of the Clayton Act, 24 Yale J. on Reg. 107, 112–13 (2007) (“Interlocks are far from all bad. The most general justification for permitting interlocks is that interference with the free selection of board directors is harmful to the corporation.”); Jacobs, supra note 35, at 644; see also infra Section III.B.
[38] See Jacobs, supra note 35, at 644; see also Spencer Weber Waller, Corporate Governance and Competition Policy, 18 Geo. Mason L. Rev. 833, 857–58 (2011).
[39] See generally Org. for Econ. Coop. & Dev., Antitrust Issues Involving Minority Shareholding and Interlocking Directorates (2009), http://www.oecd.org/daf/competition/mergers/41774055.pdf. [https://perma.cc/CU68-3HGU]. This report compiles written submissions from Belgium, Brazil, Canada, Czech Republic, the European Commission, Germany, Indonesia, Ireland, Israel, Italy, Japan, Korea, Lithuania, Mexico, the Netherlands, Norway, Romania, South Africa, Chinese Taipei, Turkey, United Kingdom, United States, and BIAC concerning their regulation of interlocking directorate. Id.
[41] John H. Shenefield & Irwin M. Stelzer, The Antitrust Laws: A Primer 5 (4th ed. 2001) (“Markets have existed in one form or another ever since one primitive man killed more prey than he could eat and another killed less.”); Earl W. Kintner, An Antitrust Primer: A Guide to Antitrust and Trade Regulation Laws for Businessmen 1–6 (2d ed. 1973).
[42] See Kintner, supra note 41.
The social climate of the eighteenth-century America was admirably suited to the growth of competitive free enterprise. The colonies were largely free of rigid class stratification, with its attendant artificial ceilings on ambition, that prevailed in Europe. An immigrant people, worldly, activist, independent, and imbued with stern religious concepts of personal responsibility, would be very likely to embrace eagerly economic individualism. The histories of Tawney, the Beards, Nevins, and Commager offer diverse insights into the American character, but in sum they describe a new breed thirsting for economic adventure.
The political and legal atmosphere of newly independent America was no less cordial to capitalism. The architects of the American polity placed the decentralization of political power at the highest point on their scale of values. Both the short-lived Articles of Confederation and the Constitution reflect a supreme fear of centralized power.
Id. at 1.
[43] Id. See generally Stephen M. Feldman, Is the Constitution Laissez-Faire? The Framers, Original Meaning, and the Market, 81 Brook. L. Rev. 1 (2015). It can hardly be considered a lucky happenstance that the freedom of the United States, which would outlaw monopolies, cartels, and other discriminatory practices, coincided with the release of The Wealth of Nations. Id.
[44] See Kintner, supra note 41.
[46] Yane Svetiev, Antitrust Governance: The New Wave of Antitrust, 38 Loy. U. Chi. L.J. 593, 641 (2007).
[47] Id. (quoting Adam Smith, The Wealth of Nations 128 (Edwin Cannan ed., Random House 1937) (1776)).
[48] Robert A. Levy, The Case Against Antitrust, Cato Inst. (Nov. 17, 2004), https://www.cato.org/publications/commentary/case-against-antitrust [https://perma.cc/K9H9-EB2Z].
[49] See Svetiev, supra note 46; see also Benjamin J. Larson, Antitrust for All: A Primer for the Non-Antitrust Practitioner, 43 Colo. Law. 19, 19 (2014) (“[T]he unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress.”). Justice Holmes explained this principle in 1896:
It has been the law for centuries that a man may set up a business in a small country town, too small to support more than one, although thereby he expects and intends to ruin some one already there, and succeeds in his intent. In such a case he is not held to act “unlawfully and without justifiable cause[]” . . . . The reason, of course, is that the doctrine generally has been accepted that free competition is worth more to society than it costs, and that on this ground the infliction of the damage is privileged.
Vegelahn v. Guntner, 44 N.E. 1077, 1080 (Mass. 1896) (Holmes, J., dissenting) (citations omitted).
[50] See Svetiev, supra note 46, at 641.
[51] Steven Semeraro, Demystifying Antitrust State Action Doctrine, 24 Harv. J.L. & Pub. Pol’y 203, 215 (2000).
[52] John D. Bishop, Adam Smith’s Invisible Hand Argument, 14 J. Bus. Ethics 165 (1995).
Every individual . . . neither intends to promote the public interest, nor knows how much he is promoting it . . . he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
Adam Smith Quotes, Adam Smith Inst., https://www.adamsmith.org/adam-smith-quotes [https://perma.cc/4792-XRZQ].
[53] Kenneth G. Elzinga & Micah Webber, Louis Brandeis and Contemporary Antitrust Enforcement, 33 Touro L. Rev. 277, 282–85 (2017).
[54] Sebastian Hensiek, Five of the Largest U.S. Monopolies in History, Worthly, https://worthly.com/business/largest-monopolies-in-the-us [https://perma.cc/ZME8-MWCK] (In order of their control of their respective market, according to Hensiek, the largest U.S. monopolies are: Standard Oil, Monsanto, Intel, The United States Steel Corporation, and The Bell Telephone Company).
[55] See Elzinga & Webber, supra note 53, at 282.
[56] Richard A. Posner, Antitrust Law 33–35 (2d ed. 2001); Barak Orbach, How Antitrust Lost Its Goals, 81 Fordham L. Rev. 2253, 2259 (2013) (“The overwhelming public support for the anti-trust bill made voting against it a risky choice for politicians with aspirations for reelection.”); Sherman Anti Trust Act of 1890, SHRM (Apr. 21, 2016), https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/sherman-anti-trust-act.aspx [https://perma.cc/KTV6-FZLK] (“This ground-breaking piece of legislation was the result of intense public opposition to the concentration of economic power in large corporations and in combinations of business concerns . . . . Opposition to the trusts was particularly strong among farmers, who protested the high charges for transporting their products to the cities by railroad.”); see also Kintner, supra note 42, at 10–13.
[57] For a discussion on whether the distrust by the public regarding monopolies actually rose to a threshold requiring regulation, see William L. Letwin, Congress and the Sherman Antitrust Law: 1887–1890, 23 U. Chi. L. Rev. 221 (1956). Letwin states:
No one denies that Congress passed the Sherman Act in response to real public feeling against the trusts, but at this distance it is difficult to be sure how hostile the public was and why. The intensity of public opposition, difficult though it may be to assess, is of some importance in explaining what Congress did. If public hatred of trusts was violent, or if congressmen thought it was, then they might have felt so pressed to pass the law, whatever their own judgments, as to have done the work hastily and perhaps spitefully. If, on the other hand, the public opposition was firm but calm, then Congress may have felt free to pass the best law it could devise.
Id. at 222.
[58] Orbach, supra note 56, at 2257–59 (“The bill passed the Senate by a vote of 52 to 1, with 29 Senators absent. It passed the House of Representatives by a vote of 242 to 0, with 85 members choosing not to vote.”).
[61] Id. at 2262–63 (“The members of Congress undoubtedly intended to address the ‘trust problem,’ but their lack of direct discussion of the merits of competition is puzzling. . . . ‘Competition’ was an abstract concept that generally meant absence of restraints of trade. . . . The concept[] of . . . ‘competition’ [was] still in rudimentary form. Economists used and wrote about them but in an intuitive manner.”).
[62] Id. (“[T]he ‘trusts problem’ generally meant restraints of trade, high prices, limited production, low wages, losses to small businesses, and other forms of perceived economic oppression. ‘No trusts’ generally meant a state of competition, freedom from restraints of trade, low prices, better conditions of supply, and prosperity opportunities.”).
[63] Randal C. Picker, The Interstate Commerce Act and the Sherman Act: Playing Railroad Tycoon, 95 Marq. L. Rev. 1135, 1136 (2012). The entire Sherman Act was only one-and-a-half pages long in the Statutes at Large. Id. As James W. Ely, Jr. felicitously described, “[t]he Sherman Act was a compromise written in ambiguous language that provided no guidance as to practical application.” James W. Ely, Jr., The Chief Justiceship of Melville W. Fuller, 1888–1910, at 128 (1995).
[64] See generally Charles G. Dawes, The Sherman Anti-Trust Law: Why it Has Failed and Why it Should Be Amended, 183 N. Am. Rev. 189 (1906); see also William Letwin, Law and Economic Policy in America: The Evolution of the Sherman Antitrust Act 53 (1965) (a prevailing thought at the time insisted that the Sherman Act was nothing more than a farce, “contrived to soothe the public without injuring the trusts . . . because the Republican Party, in control of the 51st Congress, was ‘itself dominated . . . by many of the very industrial magnates most vulnerable to real antitrust legislation’”); Antitrust Law—The Sherman Act and Early Enforcement, JRANK, http://law.jrank.org/pages/4362/Antitrust-Law-Sherman-Act-Early-Enforcement.html [https://perma.cc/9WUV-LPXP].
[65] By 1904, there still remained some 300 large companies that controlled nearly forty percent of the nation’s manufacturing assets and influenced at least eighty percent of its vital industries. Antitrust Law—The Sherman Act and Early Enforcement, supra note 64; see also William Letwin, The First Decade of the Sherman Act: Early Administration, 68 Yale L.J. 464 (1959). “The early history of the enforcement of the Act, however, revealed a marked reluctance on the part of the government to institute cases. Indeed, the attorney general of the United States wrote in 1895 that he had taken the ‘responsibility of not prosecuting under a law I believed to be no good.’” Kintner, supra note 41, at 11 (ellipses omitted).
[66] Sherman Anti Trust Act of 1890, Soc’y for Hum. Resource Mgmt. (Apr. 21, 2016), https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/sherman-anti-trust-act.aspx [https://perma.cc/AC5E-9S3N].
[67] United States v. E.C. Knight Co., 156 U.S. 1 (1895). At the time, the American Sugar Company owned ninety-eight percent of the market. Id. at 44 (Harlan, J., dissenting).
[68] Id. at 16–18 (Fuller, J., majority opinion).
[71] Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911).
[72] Id. at 59–62. See generally Harlan M. Blake, Conglomerate Mergers and the Antitrust Laws, 73 Colum. L. Rev. 555 (1973).
[73] See generally Standard Oil Co., 221 U.S. 1 (broad language of § 1 of the Sherman Act was construed as prohibiting only those arrangements which are significantly and unreasonably anticompetitive in character or effect).
[77] E. Thomas Sullivan, The Antitrust Division as a Regulatory Agency: An Enforcement Policy in Transition, 64 Wash. U. L.Q. 997, 1009 (1986) [hereinafter Sullivan, Antitrust Division]; E. Thomas Sullivan & Herbert Hovenkamp, Antitrust Law, Policy and Procedure 36–37 (1984).
[78] Sullivan, Antitrust Division, supra note 77, at 1009.
[82] Compare United States v. E.C. Knight Co., 156 U.S. 1 (1895), with United States v. Trans-Missouri Freight Ass’n, 166 U.S. 290 (1897), and United States v. Joint-Traffic Ass’n., 171 U.S. 505 (1898).
[83] Donald J. Smythe, The Supreme Court and the Trusts: Antitrust and the Foundations of Modern American Business Regulation from Knight to Swift, 39 U.C. Davis L. Rev. 85, 96 (2005).
[84] E.C. Knight Co., 156 U.S. at 10–13.
[85] See Smythe, supra note 83, at 96.
[86] Id. at 141–42. Attorney General Judson Harmon remarked on the Sherman Act after the government’s defeat in E.C. Knight: “The restricted scope of the provisions of this law as they have been construed by the courts, especially in the case of [E. C. Knight Co.], makes amendment necessary if any effective action is expected from this department.” Gilbert Holland Montague, The Defects of the Sherman Anti-trust Law, 19 Yale L.J. 88, 89 (1909) (internal citation omitted).
[87] See Smythe, supra note 83, at 140.
[88] Bankamerica Corp. v. United States, 462 U.S. 122, 126–27 (1983); United States v. E. I. Du Pont De Nemours & Co., 353 U.S. 586, 597 (1957); Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346, 355–56 (1922); United Shoe Mach. Corp. v. United States, 258 U.S. 451, 460 (1922); United States v. Crocker Nat. Corp., 656 F.2d 428, 435–36 (9th Cir. 1981); see Kintner, supra note 41, at 21–22; see also J.H. Benton, The Sherman or Anti-Trust Act, 18 Yale L.J. 311, 327 (1909). In discussing the defects of the Sherman Act, Benton said:
The fact is that the reason why the Sherman Act has not been efficiently enforced is because it is an unenforceable statute. It is as useless to attempt to enforce it generally and uniformly, according to its plain provisions, as it would be to attempt to enforce a statute regulating the price of commodities or the intrinsic value of money. The Act is an attempt to control commercial and economic forces by statute, and like all similar Acts, must ultimately either fall into entire disuse, or be repealed, after having caused, as such statutes always do, more or less injury to the community.
The remedy for the evils of the Act is not in providing cumbrous, mischievous and unworkable methods for avoiding some of them, but by substituting for it, so far as the public welfare requires, a properly framed, guarded and workable Act, with proper provisions for its efficient and uniform enforcement.
Benton, supra, at 327.
[89] Legislative materials establish that the Clayton Act was intended to supplement and strengthen the Sherman Act in preserving a free competitive economy; that interlocking directorates between large competing corporations were regarded as a precursor to restraint and monopoly and thus as a most serious threat to free competition; and that such interlocking directorates were strongly condemned. As Judge Weinfeld has said:
[T]he broad purposes of Congress are unmistakably clear. Section 8 was . . . intended to strengthen the Sherman Act, which, through the years, had not proved entirely effective. . . . Interlocking directorships on rival corporations had been the instrumentality of defeating the purpose of the antitrust laws. They had tended to suppress competition or to foster joint action against third party competitors. The continued potential threat to the competitive system resulting from these conflicting directorships was the evil aimed at. Viewed against this background, a fair reading of the legislative debates leaves little room for doubt that, in its efforts to strengthen the antitrust laws, what Congress intended by § 8 was to nip in the bud incipient violations of the antitrust laws by removing the opportunity or temptation to such violations through interlocking directorates.
United States v. Sears, Roebuck & Co., 111 F. Supp. 614, 616 (S.D.N.Y. 1953).
[90] James W. Ely quite fittingly described the Sherman Act as “a compromise written in ambiguous language that provided no guidance as to practical application.” Ely, supra note 63, at 128.
[92] Bankamerica Corp., 462 U.S. at 126–27; see Kintner, supra note 41, at 110 (“The enactment of Section 8 of the Clayton Act was prompted by the possibility that a few individuals or groups could effectively control and eliminate vigorous competition between corporations through the use of common directorates and thus circumvent other sections of the antitrust laws.”).
[93] Antitrust Act, 1914, ch. 323, § 8, 38 Stat. 730, 732–33 (codified as amended at 15 U.S.C. § 19 (1993)).
[94] See ABA, Interlocking Directorates, supra note 20, at 1–3.
As early as 1908 the Democratic Party platform called for a law ‘preventing the duplication of directors among competing corporations.’ The impetus for reform varied; some thought the spirit of the broadly worded Sherman Act was violated by interlocking directorates; others thought the Sherman Act should be supplemented with provisions preventing anti-competitive practices before they required enforcement action.
Id. at 1–2 (internal footnotes omitted).
[95] Arthur H. Travers, Jr., Interlocks in Corporate Management and the Antitrust Laws, 46 Tex. L. Rev. 819, 824 (1968). The antitrust arm of the Democratic party even went as far as to call for
the use of criminal sanctions against “trust and trust officials” and suggested supplemental legislation that would lead to “the prevention of holding companies, of interlocking directors, of stock watering, of discrimination in price, and the control by any one corporation of so large a proportion of any industry as to make it a menace to competitive conditions. . . .”
Id.
[98] Id. Although Wilson’s discussion of interlocks highlighted the possibility of a supercombination, it also suggested another, less dramatic, aspect of the interlock question: the elimination of opportunities for young men. Wilson was less concerned with general mobility than with the reduced chance to get to the top. If one thinks of a place on the board of a large corporation as the top, there are only so many spots available. Any man holding more than one spot restricts the opportunities available. Id. at 834–35.
[99] See ABA, Interlocking Directorates, supra note 20, at 3.
[100] At the time, the combined assets of the different corporations where U.S. Steel directors served as board members exceeded sixteen billion dollars, and the corporation had directors on the boards of many companies that were major steel purchasers. See id.
[101] See id. at 3 n.14. The Stanley and Pujo Committees’ discoveries certainly had an effect on these large institutions as J.P. Morgan, Jr., George F. Baker, and other influential individuals in the financial institution announced their resignation from directorships of dozens of large corporations. Id. at 7.
[102] Louis D. Brandeis published many articles in Harper’s Weekly criticizing and admonishing interlocking directors because they facilitated a “money monopoly” that concentrated power in the hands of a few wealthy and powerful men. ABA Section of Antitrust Law, Interlocking Directorates: Handbook on Section 8 of the Clayton Act 3 (2011).
The practice of interlocking directorates is the root of many evils. It offends laws human and divine. Applied to rival corporations, it tends to the suppression of competition and to violation of the Sherman law. Applied to corporations which deal with each other, it tends to disloyalty and to violation of the fundamental law that no man can serve two masters. In either event it tends to inefficiency; for it removes incentive and destroys soundness of judgment. It is undemocratic, for it rejects the platform: “A fair field and no favors,”—substituting the pull of privilege for the push of manhood.
Louis D. Brandeis, Other People’s Money and How the Bankers Use It 51 (1914).
[103] Bankamerica Corp. v. United States, 462 U.S. 122, 134 (1983); see ABA, Interlocking Directorates, supra note 20, at 4–7.
[104] See ABA Section of Antitrust Law, supra note 102, at 3.
[105] See ABA, Interlocking Directorates, supra note 20, at 4–5. This was a sentiment that was shared by President Woodrow Wilson during his political campaign in 1912.
[106] “Rather than enacting a broad scheme to ban all interlocks between potential competitors, Congress approached the problem of interlocks selectively, limiting both the classes of corporations and the kinds of interlocks subject to regulation.” Bankamerica Corp., 462 U.S. at 127.
[107] See generally H.R. 15657, 63d Cong. (2d Sess. 1914); see ABA, Interlocking Directorates, supra note 20, at 7. This bill would become the Clayton Act. Two days before Representative Clayton presented House Bill 15657, Wilson addressed Congress, speaking exuberantly about the end of the antagonism between big business and government and the dawn of an era of good feeling and claimed that business awaited:
[L]aws which will effectually prohibit and prevent such interlockings of the personnel of the directorates of great corporations . . . as in effect result in making those who borrow and those who lend practically one and the same, those who sell and those who buy but the same persons trading with one another under different names and in different combinations, and those who affect to compete in fact partners and masters of some whole field of business.
Henry Holt & Co., President Wilson’s Addresses 27 (George McLean Harper ed., 1918). In this speech Wilson returned to his campaign theme: the legislation would do more than eliminate existing evils; it would create opportunities and open “the field . . . to scores of men who have been obliged to serve when their abilities entitled them to direct.” Id. at 28. He also asked for prohibitions on certain unfair practices and the creation of a federal commission with investigatory and advisory powers to aid in antitrust enforcement. Id. at 26–29.
[108] See ABA, Interlocking Directorates, supra note 20, at 8–9; H.R. Rep. No. 63-627, at 19 (1914). The House also heard arguments on the additional exceptions to the banking provisions of the Section and the addition of a “$1,000,000 capital, surplus, and undivided profits requirement.” ABA, Interlocking Directorates, supra note 20, at 8–9.
[109] The Senate Judiciary Committee thought that these provisions should be in the purview of banking laws. ABA, Interlocking Directorates, supra note 20, at 11–12.
[111] Once a conference report was sent to the Senate,
[s]everal days of debate in the Senate followed, during which the conference report was strenuously attacked by Senator Reed of Missouri because of the elimination of criminal penalties. It was this fact that led him . . . to offer . . . a motion to recommit the conference report with instructions to the Senate conferees to insist upon the insertion in the bill of the criminal penalties substantially as these had appeared in the House measure. The motion failed, 35 to 25 [], and the Senate by a vote of 35 to 24 agreed to the report [].
W.H.S. Stevens, The Clayton Act, 5 Am. Econ. Rev. 38, 39 (1915). Senator Reed would go on to remark on his disapproval of the whole Clayton Act: “When the Clayton bill was first written, it was a raging lion with a mouth full of teeth. It has degenerated to a tabby cat with soft gums, a plaintive mew, and an anemic appearance.” See Travers, supra note 95, at 830 n.54.
[112] See ABA, Interlocking Directorate, supra note 20, at 14.
[113] See Stevens, supra note 111, at 39–40.
[114] To review all previous amendments, see ABA Section of Antitrust Law, supra note 102, at 4–6.
[115] See id. at 4–6 and accompanying footnotes.
[116] Antitrust Amendment Act of 1990, Pub. L. No. 101-588, 104 Stat. 2879.
[117] Id. This figure refers to the market cap.
[118] S. Rep. No. 101-286, at 5–6 (1990), reprinted in 1990 U.S.C.C.A.N. 4100, 4103–04 (“The intent of the committee is to preclude from the prohibition against interlocking directors competitive overlaps which are too small to have competitive significance in the vast majority of situations.”); see H.R. Rep. No. 101-483 (1990).
[119] See ABA Section of Antitrust Law, supra note 102, at 8–9.
[120] The amendment provided that the “threshold[] . . . shall be increased (or decreased) . . . by an amount equal to the percentage increase (or decrease) in the gross national product, as determined by the Department of Commerce or its successor, for the year then ended over the level so established.” Antitrust Amendment Act of 1990.
[121] See Antitrust Amendment Act of 1990.
[122] 23 F.3d 1184 (7th Cir. 1994).
[128] The applicable Section 8 text stated:
No person at the same time shall be a director in any two or more corporations, any one of which has capital, surplus, and undivided profits aggregating more than $1,000,000, engaged in whole or in part in commerce, . . . if such corporations are or shall have been theretofore, by virtue of their business and location of operation, competitors, so that the elimination of competition between them would constitute a violation of any of the provisions of any of the antitrust laws.
Id.
[130] Id. According to Barancik, Justrite Manufacturing Company’s capital, surplus, and undivided profits did not exceed ten million dollars on April 1, 1991. Id.
[132] See Antitrust Amendment Act of 1990, Pub. L. No. 101-588, 104 Stat. 2879.
[134] Compare Paramount Pictures Corp. v. Baldwin-Montrose Chem. Co., No. 65 Civil 2586, 1966 U.S. Dist. LEXIS 10596, at *23–24 (S.D.N.Y. Jan. 24, 1966) (noting the existence of a de minimis exception), with TRW, Inc. v. Fed. Trade Comm’n, 647 F.2d 942, 948 (9th Cir. 1981) (holding that no such defense exists), and In re Borg-Warner Corp., 101 F.T.C. 863, 940–41 (1983) (similarly holding that no de minimis exception is written in the language of Section 8), modified, 102 F.T.C. 1164 (1983), rev’d on other grounds, 746 F.2d 108 (2d Cir. 1984). While the FTC had taken the position that no de minimis defense existed, published FTC consent orders had permitted some competition between interlocking companies. See, e.g., In re Hughes Tool Co., 103 F.T.C. 17, 21 (1984) (prohibiting future interlocks if the competing lines of both companies equal or exceed five million dollars).
[135] 136 Cong. Rec. 10,425 (1990). To view the three bills prior to the enactment of the 1990 Amendments, see, e.g., Antitrust Amendments Act of 1990, H.R. 29, 101st Cong. (enrolled version); S. 1068, 100th Cong. (1987); Interlocking Directorate Act of 1986, H.R. 4248, 99th Cong.
[136] The American Bar Association proposed an exemption from the interlock prohibition if (a) the aggregate sales of each competing product or service constituted ten percent or less of sales in the relevant market, or (b) the sales volume of each corporation of each competing product or service did not exceed twenty-five million dollars. See James T. Halverson, American Bar Association Section of Antitrust Law: Report to the House of Delegates on Amending Section 8 of the Clayton Act, 55 Antitrust L.J. 647, 651–53 (1986). The American Bar Association opposed an exemption based on the competitive overlap exceeding some percentage of sales of a firm because “a small percentage of sales of a large corporation may constitute such a substantial share of a relevant market that concerns about the effect on competition would be raised.” Id. at 653.
[137] Antitrust Amendments Act of 1990, H.R. 29, 101st Cong. (enrolled version).
[138] H.R. Rep. No. 101-483, at 6 (1990).
[139] 136 Cong. Rec. 10,424–26 (1990) (Representative Fish, the primary House sponsor of the bill commented: “Simply put, [Department of] Justice preferred that [S]ection 8 remain a per se statute for the sake of enforcement simplicity and resource allocation within the Antitrust Division.”).
[140] In particular, Professor James F. Ponsoldt proposed that the de minimis exemptions utilizing a percentage of sales be limited to situations where the combined market share of the interlocked firms was below ten percent. Increasing Sherman Act Criminal Penalties and Amending Clayton Act Interlocking Directorates: Hearing Before the Subcomm. on Econ. & Commercial Law of the H. Comm. on the Judiciary, 101st Cong. 61 (1989) (Serial No. 33).
[142] S. Rep. No. 101-286, at 7 (1990), as reprinted in 1990 U.S.C.C.A.N. 4100, 4105.
[143] See ABA Section of Antitrust Law, supra note 102, at 12.
[146] It is defined as “an officer elected or chosen by the Board of Directors.” 15 U.S.C. § 19(a)(4) (2018).
[149] See, e.g., Corporate Disclosure: Oversight Hearings Before the Subcomm. on Budgeting, Mgmt., & Expenditures of the S. Comm. on Gov’t. Operations, 93d Cong. 897–912 (1974); see infra notes 150–154 and accompanying text.
[150] Former FTC Chairman James Mead’s testimony in 1951 before the House Subcommittee on the Study of Monopoly Power illustrates this problem:
[S]everal years ago the board of directors of General Steel Castings contained the president and two vice presidents of American Steel Foundries, all of whom were also directors of the latter company and also contained the chairman of the board and the president of Baldwin Locomotive, both of whom were also directors of that company. When the Department of Justice questioned these interlocking directorates, the directors from American Steel Foundries and Baldwin withdrew from the General Steel Castings board. There is the catch. Their place was taken by two vice presidents and the comptroller of American Steel Foundries, and by two vice presidents of Baldwin Locomotive, but since none of these officials was a director in any of the companies but General Steel Castings, the new arrangement satisfied the requirements of Section 8 of the Clayton Act. There is no reason to believe that the closeness of the executive and policymaking ties between the three companies was in any way reduced by the changes.
Study of Monopoly Power: Hearings Before the Subcomm. on Study of Monopoly Power of the H. Comm. on the Judiciary, 82d Cong. 28 (1951).
These same loopholes exist, since the current Section 8 only covers officers and directors. It is true that courts at times have applied an “agency” theory when an individual employee may be regarded as the agent of the corporation for which she works. The interlock arises because the corporation has placed its agent or representative onto the board of its competitor. See generally Square D Co. v. Schneider S.A., 760 F. Supp. 362 (S.D.N.Y. 1991). However, the court did place some limits on its holding. It wrote that Section 8:
would not be implicated where a competitor seeks the election of an “agent” whose only purpose is consummate a takeover and who does not otherwise have a business relationship—such as that of officer, director or employee—with the firm promoting his election. In such a case, the concerns underlying [Section] 8 would not be implicated due to the limited purpose of the agency.
Id. at 367.
[151] For Section 8’s many amendments, see ABA Section of Antitrust Law, supra note 102, at 4–6.
[152] See Antitrust Modernization Comm’n, Transcript of Public Meeting 129 (2005), http://govinfo.library.unt.edu/amc/pdf/meetings/050113_Meeting_Transcript_reform.pdf [https://perma.cc/LY4R-ZV8U] (noting the hesitance of some commissioners to recognize that a problem exists absent data).
[154] Robert F. Booth Tr. v. Crowley, 687 F.3d 314, 319 (7th Cir. 2012). For further empirical data, see Wilson, supra note 15, at 317, n.1 (providing yearly breakdown of Section 8 actions brought by the government and by private parties).
[155] Matt Krantz, Web of Board Members Ties Together Corporate America, USA TODAY (Nov. 24, 2002, 6:37 PM), https://usatoday30.usatoday.com/money/companies/management/2002-11-24-interlock_x.htm [https://perma.cc/8T5Y-S8FL].
Critics say that creates the potential for serious conflicts of interest and negates what is supposed to be an independent watchdog in Corporate America’s system of checks and balances. “We’re certainly not suggesting that every (relationship) indicates some sort of impropriety,” says Ric Marshall, CEO of The Corporate Library. “But they do contain that potential.”
Id.
[158] Jesus Diaz, The Web of Board Members that Link American Corporations, Mapped, Fast Company (July 30, 2018), https://www.fastcompany.com/90209537/the-web-of-board-members-that-link-american-corporations-mapped [https://perma.cc/KZ2G-VQTJ].
[160] Peter C. Dooley, The Interlocking Directorate, 59 Am. Econ. Rev. 314, 314 (1969) (citing an economic adviser of President Wilson). This all comes back to the core of the argument: large corporations that have common directors or officers would not only be able to violate Section 8 but the wide breadth of antitrust laws, including Section 1 of the Sherman Act.
[161] One commentator who analyzed the enforcement actions described enforcement as “punctuated by a few bursts of mild activity and then followed by long periods of benign neglect.” Wilson, supra note 15, at 317. Section 8 can be enforced by the DOJ, the FTC, and private parties, including state attorneys general. There are currently no reported cases granting a state attorney general relief under Section 8. See ABA Section of Antitrust Law, supra note 102, at 36 n.110.
[162] See Wilson, supra note 15, at 317 n.1 (providing yearly breakdown of Section 8 actions brought by the government and by private parties).
[163] ABA Section of Antitrust Law, supra note 102, at 4; see Bankamerica Corp. v. United States, 462 U.S. 122, 130–31 (1983) (although a government agency is given great deference in interpreting the statute it was charged to enforce, the Government’s failure for over sixty years to exercise the power it now claims under Section 8 strongly suggests that it did not read the statute as granting such power).
[164] See Helft & Stone, supra note 8.
[166] See ABA Section of Antitrust Law, supra note 102, at 4 (corporations assume that due to the inactivity of Section 8’s enforcement, the government is acquiescing to the conduct).
[167] Robert Jay Preminger, Deputization and Parent-Subsidiary Interlocks Under Section 8 of the Clayton Act, 59 Wash. U. L.Q. 943, 953–54 (1981).
[168] Id. at 952 n.41; see supra note 89.
[169] Preminger, supra note 167, at 953.
[173] See supra notes 12–14 and accompanying text. Also, the Introduction provides the perfect example of companies removing a director or officer rather than pursuing any legal actions.
[174] See Preminger, supra note 167, at 954.
[177] See, e.g., United States v. W.T. Grant Co., 345 U.S. 629 (1953).
[178] See Preminger, supra note 167, at 955.
[180] W.T. Grant Co., 345 U.S. at 632.
[181] See ABA Section of Antitrust Law, supra note 102, at 36.
[184] See ABA Section of Antitrust Law, supra note 102, at 36.
[185] 728 F.2d 1555 (10th Cir. 1984), aff’d in part and rev’d in part en banc, 782 F.2d 855 (10th Cir. 1986), modified on other grounds en banc, 793 F.2d 1171 (10th Cir. 1986).
[S]peculation on possible ill effects of interlocking directorships and no evidence of injury” is not enough to sustain a plaintiff’s burden of showing injury causally connected to the violation. Id. at 1561. While a violation of Section 8 may provide an opportunity to conspire, “affiliation does not by itself necessarily imply conspiracy to retrain trade.
Id.
[187] Louis Kaplow, An Economic Approach to Price Fixing, 77 Antitrust L.J. 343, 429 (2011).
[190] See Krantz, supra note 155.
[191] See ABA Section of Antitrust Law, supra note 102, at 36–37.
[192] This assumption is made based on the scant number of cases brought to the courts under Section 8 violations. See supra notes 166–168 and accompanying text.
[193] Gale T. Miller, Interlocking Directorates and the Antitrust Laws, 26 Colo. Law. 53, 53 (1997).
[195] Edward J. Zajac & James D. Westphal, Director Reputation, CEO-Board Power, and the Dynamics of Board Interlocks, 41 Admin. Sci. Q. 507 (1996).
[198] Eliezer M. Fich & Lawrence J. White, CEO Compensation and Turnover: The Effects of Mutually Interlocked Boards, 38 Wake Forest L. Rev. 935, 936 (2003) (noting that another possibility is that “the mutual interlocks are an indication of the strengthening of an important and valuable strategic alliance for the company, and the higher CEO compensation and lower turnover are the CEO’s recompense for orchestrating the alliance”).
[199] See Gerber, supra note 37, at 112; Kevin F. Hallock, Reciprocally Interlocking Boards of Directors and Executive Compensation, 32 J. Fin. & Quantitative Analysis 331, 332 (1997).
[200] See Melvin Aron Eisenberg, The Structure of Corporation Law, 89 Colum. L. Rev. 1461, 1471–72 (1989); see also Nathan Hershey & Christine M. Jarzab, Fiduciary Duties of Interlocking Directors Within a Nonprofit Health System, 38 J. Health L. 449, 449 (2005).
[201] See Travers, supra note 95. This will be expanded more infra Section II.C.
[202] See Travers, supra note 95.
[204] R. Jack Richardson, Directorship Interlocks and Corporate Profitability, 32 Admin. Sci. Q. 367, 372 (1987).
[207] See generally Mark S. Mizruchi, What Do Interlocks Do? An Analysis, Critique, and Assessment of Research on Interlocking Directorates, 22 Ann. Rev. Soc. 271 (1996).
[210] See Gerber, supra note 37, at 116.
[213] Jena McGregor, This Might Help Explain Why Corporate Boards Are Still an Old Boy’s Club, Wash. Post (Oct. 11, 2016), https://www.washingtonpost.com/news/on-leadership/wp/2016/10/11/this-might-help-explain-why-corporate-boards-are-still-an-old-boys-club/?noredirect=on&utm_term=.d1a95b47805b [https://perma.cc/B32P-RAQX].
[214] See generally 136 Cong. Rec. 10,424 (1990).
[215] See ABA, Interlocking Directorates, supra note 20, at 1–4.
[216] See Travers, supra note 95, at 835; ABA, Interlocking Directorates, supra note 20, at 7. This is no less true in today’s world with the increase in technological start-ups and the influx of millennials to its cause.
[217] President Wilson thought of them as “men who have been obliged to serve when their abilities entitled them to direct.” H.R. Rep. No. 63-627, at 18 (1914).
[218] See Travers, supra note 95, at 835. In the words of the House report accompanying the Clayton bill: “The idea that there are only a few men in any of our great corporations and industries who are capable of handling the affairs of the same is contrary to the spirit of our institutions.” H.R. Rep. No. 63–627, at 19.
[219] Jena McGregor, Corporate Boards Are Still Mostly White, Mostly Male—and Getting Even Older, Wash. Post (Apr. 24, 2018, 11:39 AM), https://www.washingtonpost.com/news/on-leadership/wp/2018/04/24/corporate-boards-are-still-mostly-white-mostly-male-and-getting-even-older/?utm_term=.8301ed143f32 [https://perma.cc/6W82-LMZ3].
[220] Jordan Laird, Breaking Down the Barriers of Male-Dominated Boards, City & St. N.Y. (Oct. 30, 2018), https://www.cityandstateny.com/articles/policy/diversity/new-york-women-in-the-boardroom.html [https://perma.cc/4VE6-A6EW].
A recent analysis from 2020 Women on Boards found 55% of companies that fell off the Fortune 1000 index had one or zero women on their boards. An analysis from Harvard’s School of Public Health ranked Fortune 500 companies by number of women directors present on their boards and found those in the highest quartile had a 42% return on sales.
Frances Kiradjian, Women on Boards: Why the Conversation Matters, Forbes (May 21, 2018, 9:00 AM), https://www.forbes.com/sites/forbeslacouncil/2018/05/21/women-on-boards-why-the-conversation-matters/#240cf7d373a5 [https://perma.cc/Z2WC-D8DB].
[221] See Kiradjian, supra note 220.
[223] See Travers, supra note 95, at 836.
[227] See Joshua P. Davis & Robert H. Lande, Defying Conventional Wisdom: The Case for Private Antitrust Enforcement, 48 Ga. L. Rev. 1, 7–14 (2013).
[228] Daniel A. Crane, Optimizing Private Antitrust Enforcement, 63 Vand. L. Rev. 675, 691–98 (2010).
[231] See Maurice E. Stucke, Reconsidering Antitrust’s Goals, 53 B.C. L. Rev. 551, 557–68 (2012).
[232] James R. Eiszner, Antitrust Civil Damages Remedies: The Consumer Welfare Perspective, 75 UMKC L. Rev. 375, 376–83 (2006).
[233] Compare Wilson, supra note 15, at 317 (low number of cases), with Krantz, supra note 155 (high number of interlocks).
[234] Compare Wilson, supra note 15, at 317, with Krantz, supra note 155.
[235] Compare Wilson, supra note 15, with Krantz, supra note 155.
[236] See Antitrust Modernization Comm’n, supra note 152, at 12.
[237] Section 8 is currently analyzed under a per se approach. 1 William C. Holmes, Intellectual Property and Antitrust Law § 5:3 (2019); see Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885–87 (2007) (“The per se rule, treating categories of restraints as necessarily illegal, eliminates the need to study the reasonableness of an individual restraint in light of the real market forces at work.”); NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 133 (1998) (“[C]ertain kinds of agreements will so often prove so harmful to competition and so rarely prove justified that the antitrust laws do not require proof that an agreement of that kind is, in fact, anticompetitive in the particular circumstances. . . . An agreement of such a kind is unlawful per se.” (internal citations omitted)).
[238] Fischer, supra note 35, at 339–41. Eric Fischer argues for a hypothetical horizontal merger standard which would take into account the relevant product and the geographic market of that product to calculate its probability of antitrust concerns. Id.
[240] Holmes, supra note 237, § 5:3; see Thomas A. Piraino, Jr., Reconciling the Per Se and Rule of Reason Approaches to Antitrust Analysis, 64 S. Cal. L. Rev. 685, 689–90 (1991).
[241] Piraino, supra note 240.
[244] Id.; see also Maurice E. Stucke, Does the Rule of Reason Violate the Rule of Law?, 42 U.C. Davis L. Rev. 1375, 1379 (2009).
[245] Piraino, supra note 240, at 690.
[246] David A. Clanton, Horizontal Agreements, the Rule of Reason, and the General Motors-Toyota Joint Venture, 30 Wayne L. Rev. 1239, 1249 (1984).
[247] See Rosch, supra note 15, at 20–22.
[248] Dokjeom gyuje mit gongjeong geooraeae gwanhan beobyul [Monopoly Regulation and Fair Trade Act], Act No. 15014, Oct. 31, 2017, art. 7 (S. Kor.), translated in Korea Law Translation Center, http://elaw.klri.re.kr/eng_service/lawView.do?hseq=45954&lang=ENG [https://perma.cc/6QGG-N5ZS?type=image] (prohibiting acquisitions, including those through an interlocking directorate that may substantially restrict competition in a specific market).
[249] The Law Concerning the Ban on Monopolistic Practices and Unfair Business Competition 1999, No. 5, art. 26 (Indon.) (“A person holding the position as a member of the board of directors or as a commissioner of a company, shall be prohibited from concurrently holding the position as a member of the board of directors or a commissioner in another company, in the event that such companies: a. are in the same relevant market; or b. have a strong connection in the field and or type of business activities concerned; or c. are jointly capable of controlling the market share of certain goods and or services, which may result in monopolistic practices and or unfair business competition.”).
[250] See supra notes 237 and 248–249.
[251] See Antitrust Issues Involving Minority Shareholding and Interlocking Directorates, supra note 39, at 139.
[252] See ABA Section of Antitrust Law, supra note 102, at 4.
[253] See Krantz, supra note 155.
[254] See Travers, supra note 95, at 833.
[256] United States v. Sears, Roebuck & Co., 111 F. Supp. 614, 616 (S.D.N.Y. 1953).
[257] In re Perpetual Fed. Sav. & Loan Ass’n, 90 F.T.C. 608, 622 (1977) (initial decision). Sherman Act § 1, 15 U.S.C. § 1 (2018), declares illegal “[e]very contract, combination, . . . or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.”
[258] Perpetual, 90 F.T.C. at 623.
[260] See Piraino, supra note 240; Stucke, supra note 244.
[261] See Piraino, supra note 240 and accompanying text; Stucke, supra note 244 and accompanying text.
[264] S. Rep. No. 101-286, at 5 (1990), as reprinted in 1990 U.S.C.C.A.N. 4100, 4104.
[265] See, e.g., Apex Hosiery Co. v. Leader, 310 U.S. 469, 485 (1940) (noting that “in the application of the Sherman Act . . . it is the nature of the restraint and its effect on interstate commerce and not the amount of the commerce which are the tests of violation”).
[267] See, e.g., Fed. Trade Comm’n v. Brown Shoe Co., 384 U.S. 316, 320–21 (1966).
[269] In re Kraftco Corp., 89 F.T.C. 46 (1977), remanded sub nom. SCM Corp. v. Fed. Trade Comm’n, 565 F.2d 807 (2d Cir. 1977).
[270] Both companies were competitors in the market for margarine. Id. at 46.
[272] In re Borg-Warner Corp. 101 F.T.C. 863 (1983), modified, 102 F.T.C. 1164 (1983), rev’d on other grounds, 746 F.2d 108 (2d Cir. 1984).
[273] Id. at 936, 940; see In re Perpetual Fed. Sav. & Loan Ass’n, 90 F.T.C. 608, 652 (1977) (interlock among firms competing in markets for exploration, production, and sale of crude petroleum and natural gas was alleged to violate § 5 and § 8).
[274] See In re TRW, Inc., 93 F.T.C. 325, 379 n.12 (1979), aff’d in part and rev’d in part on other grounds, 647 F.2d 942 (9th Cir. 1981).
[275] See Stevens, supra note 111, at 38–39 and accompanying text; see also Travers, supra note 95, at 830 n.54.