DealLawyers.com Blog

Last week, the Federal Trade Commission announced a consent decree settling charges that statements made by Valassis Communications during an earnings conference call amounted to an unlawful invitation to collude. During the call, Valassis announced its intention to maintain – but not grow – its current market share, defend its existing client base, submit bids on expiring competitor contracts at prices above current levels, honor prices quoted in existing bids for a limited time, and then to monitor its competitor’s response to these initiatives.

The FTC alleged that those statements were an invitation to the company’s only competitor to collude on pricing. Without alleging an agreement (an essential element of Section 1 of the Sherman Act), the FTC charged Valassis with a violation of Section 5 of the Federal Trade Commission Act.

Here is an excerpt from a Wilson Sonsoni memo posted in our “Antitrust” Practice Area which analyzes the ramifications of this decision:

“While Valassis’ pointed earnings-call statements can be characterized as an invitation to collude, many might find substantively similar unilateral statements to be commonplace or benign where there is no acceptance or agreement by other competitors.

The FTC presumably recognizes the need to refrain from unduly chilling legitimate corporate speech, not to mention the impracticality of monitoring corporations’ public communications—especially those required by the securities laws. Nevertheless, here the FTC chose to challenge unilateral statements in an earnings call about pricing plans and business strategies, undeterred by the absence of an agreement or even a competitor’s response. The FTC found it important that: (1) Valassis had not provided information of this type to the securities community in the past; (2) analysts had no need for this information and did not report it; and (3) Valassis had no legitimate business justification for the disclosures. It followed, claimed the FTC, that the only purpose behind the statements was to convey an invitation to News America, knowing that News America would be monitoring the call.

With this order, public corporations accountable to their shareholders must tread more delicately in publicly addressing their competitive strategies. As a practical matter, corporations must disclose some strategic planning, and must be sufficiently candid to avoid securities-related lawsuits. This is particularly the case when, as in the Valassis disclosures, the company is changing its strategy. However, the FTC’s order announces antitrust risk in such disclosures, with little guidance on how to minimize the risk. Virtually any statement a business makes implicates strategy or pricing, whether it offers plans to implement discounts, raise prices, enter markets, or roll back certain products. For businesses in concentrated markets, the order is particularly troublesome. Will their statements be received by the FTC as an invitation to competitors to collude or as a signal to raise prices? Are they providing too much detail, and thus risking antitrust scrutiny? Are they providing too little detail, and thus exposing themselves to securities-related risk? If a competitor responds to these disclosures with changed pricing or market strategies, will their response be interpreted as a sign of reciprocation or agreement?

Price-fixing and market-allocation claims usually require evidence of an agreement between two or more competitors. This consent order effectively expands this type of claim to encompass unilateral conduct, at least insofar as liability under Section 5 of the FTC Act goes. One consolation is that Section 5 of the FTC Act does not permit private actions or trebled damages, unlike the Sherman Act. Consequently, unless a conspiracy (that is, something more than an unaccepted offer) can be alleged, the FTC’s invitation-to-collude theory will not give private plaintiffs another antitrust cause of action. Even so, we expect that the FTC’s action here will encourage plaintiffs to advance more expansive arguments that an agreement should be more readily inferred from the existence of similar public statements followed by some parallel action by competitors. In any event, businesses now will have to be even more careful when preparing for earnings calls.”