Antitrust Compliance: Risk Assessment

by Douglas Tween, Linklaters

This practice note describes the importance and benefits of conducting antitrust compliance risk assessments, both when first designing an antitrust compliance program and periodically thereafter as risks may evolve. It also explains how to create an antitrust risk assessment plan for your client.

An antitrust risk assessment is composed of a variety of information-gathering activities and techniques to assess the nature and extent of your client's antitrust risk exposure. These activities consist of a series of questions to pose to your client and its employees to better understand your client's business practices and elicit any information about possible antitrust violations or risky behavior, a review of your client's relevant company documents to detect any unsafe business practices or risky language and any other follow-on information-gathering activities you may determine are appropriate based on the results of your employee interviews and review of company documents.

An antitrust risk assessment is different from an antitrust compliance program, as it is limited to identifying risks and assessing their likelihood and potential consequences. An antitrust compliance program is created in light of your client's antitrust risk assessment results, with the aim of mitigating those antitrust risks by implementing a set of antitrust policies that employees must follow and of identifying company personnel or departments (e.g., compliance, legal) to contact with antitrust questions, address concerns, or report suspected violations. For more information on how to create an effective antitrust compliance program, including a description of its essential features, see the practice note Antitrust Compliance: Drafting Policies and Procedures.

An antitrust risk assessment is often the first step to take in designing an antitrust compliance program for your client because it gives you better insight into the company's antitrust risks. Those insights and results enable you to draft a more tailored antitrust compliance program for your client that addresses its risk profile. You should emphasize to your client that performing a risk assessment is an essential component of a credible antitrust compliance program, as it ensures that compliance resources are allocated to the areas that face the highest risk of antitrust violations.

The essential nature of an antitrust risk assessment was reaffirmed by the Antitrust Division of the U.S. Department of Justice (DOJ), in its publication of Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations. The DOJ guidance, which is intended to assist prosecutors in their evaluation of compliance programs at the charging and sentencing stages of investigations, identifies risk assessments as being one of nine essential elements of an effective compliance program.

The guidance is especially noteworthy in that it announced, for the first time, that the DOJ will consider and potentially reward effective compliance programs at the charging stage in criminal antitrust investigations (previously, the DOJ had considered compliance programs only at the sentencing stage), and that companies will be eligible for a Deferred Prosecution Agreement (DPA) if they implement robust compliance programs, self-report wrongdoing, cooperate in DOJ investigations and take remedial action. Accordingly, not only will antitrust-focused risk assessments allow your client to most effectively allocate its resources, but, in the unfortunate event that an antitrust violation occurs, the extent to which risk assessments were effectively designed and conducted may influence charging decisions.

For a more comprehensive list of related antitrust compliance content, see Antitrust Compliance Resource Kit.

For the text of the DOJ's guidance, see Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations.

It is important to stress to your client that your risk assessment is a tool to prioritize and allocate resources for risks depending on their seriousness and likelihood of occurrence. However, your compliance program will have to place a clear ban on manifestly illegal conduct. In conducting your risk assessment, you should never consider the likelihood of an enforcement action as a consideration in whether to engage in a specific wrongful activity. Rather, the risk assessment allows you to better set the parameters of an activity that carries a risk for potential violation of antitrust laws.

An antitrust risk assessment will help both you and the client understand the full range of the company's antitrust risk exposure, and help you to best prioritize risks, link these risks to the appropriate risk owners and effectively allocate resources to mitigate negative consequences. Conducting an antitrust risk assessment yields the following tangible benefits:

Avoiding Violations

Conducting a risk assessment will enable you and your client to identify and address potential antitrust risks and stop violations from occurring. You can use the results of the antitrust risk assessment to draft an antitrust compliance policy, rule or statement that addresses those risks, thereby giving employees the guidance needed to sidestep legally risky business situations and avoid antitrust violations. DOJ officials observe that avoiding an antitrust violation is much more important than the post-violation mitigation of the crime. Organizations with sound risk-assessment practices and effective antitrust compliance programs reduce the risk of civil and criminal violations and save money that would otherwise be spent defending their conduct in court.

Early Detection of Violations

The risk assessment will increase your client's ability to detect potential and actual violations. Catching a violation during a risk assessment would further have a significant impact on the fine calculation under the U.S. Sentencing Guidelines (USSG). The USSG are generally used by the U.S. federal courts when imposing sentences, including for criminal violations of Section 1 of the Sherman Act.

Leniency Programs

Early detection through risk assessment can increase your client's chances of qualifying for amnesty under the DOJ's Corporate Leniency Policy. For a detailed discussion, see the practice note Leniency Program. For general information on the Antitrust Division's Corporate Leniency Program, see The United States Department of Justice Antitrust Division Leniency Program.

Sentencing Benefits

Even if your risk assessment does not detect misconduct early enough for amnesty, there are benefits associated with detecting and then self-reporting antitrust violations to DOJ's Antitrust Division. You should advise your client that they may be eligible for potential credit or reduced fines and penalties at sentencing if they self-report antitrust violations found during an antitrust risk assessment. For more information, see USSG § 8C2.5(f)(1).

Avoid Financial, Reputational, and Organizational Harm

You should advise your client that regularly conducting an antitrust risk assessment will enable the company to minimize or avoid the financial, reputational and organizational harm associated with antitrust violations. When counseling your client about the importance of conducting a risk assessment, especially when weighed against the time and resources that will be consumed, you should emphasize to your client that the benefits of a robust risk assessment at the outset far outweighs the potential costs of defending the company in an antitrust investigation or lawsuit later on (e.g., legal expenses, impact on business reputation, risk of business disruption and impact on workforce morale and productivity). As global regulations and stakeholder expectations increase, organizations are exposed to more antitrust compliance risk than ever before. Violations of such regulations and organizational standards of practice pose a great threat to an organization's financial, organizational and reputational standing, which can have long-lasting repercussions. For further information on the role an antitrust risk assessment can play in creating an effective antitrust compliance program, see the practice note entitled Antitrust Compliance: Benefits of Adopting an Antitrust Compliance Program.

Compliance with USSG Requirements

Apart from the benefits of conducting a risk assessment, you should also inform your client that the USSG require that the organization conduct periodic risk assessments to reduce the risk of criminal conduct. USSG § 8B2.1; Effective Compliance and Ethics Program. The Commentary to Chapter 8 Part B Section 2.1 subsection (c) of the USSG explains that to meet the requirements of subsection (c), an organization shall periodically assess the risk that criminal conduct will occur, including assessing the following:

• •The nature and seriousness of such criminal conduct
• •The likelihood that certain criminal conduct may occur because of the nature of the organization's business
  • o If, because of the nature of an organization's business, there is a substantial risk that certain types of criminal conduct may occur, the organization shall take reasonable steps to prevent and detect that type of criminal conduct. For example, an organization that, due to the nature of its business, employs sales personnel who have flexibility to set prices, shall establish standards and procedures designed to prevent and detect price-fixing; or an organization that, due to the nature of its business, employs sales personnel who have flexibility to represent the material characteristics of a product shall establish standards and procedures designed to prevent and detect fraud.
  • o The prior history of an organization, which may indicate types of criminal conduct that it should take actions to prevent and detect.

These USSG considerations constitute yet another reason for conducting periodic antitrust risk assessments.

DOJ's Guidance on Effective Corporate Antitrust Compliance Programs

In addition to the USSG considerations, and in the event that an antitrust violation does occur, conducting regular antitrust-focused risk assessments may be a factor that influences prosecutorial decision-making and recommendations. The DOJ in 2019 published guidance announcing that the effectiveness of a corporate antitrust compliance program, of which risk assessment plays a key part, may be a factor considered by prosecutors in criminal charging and penalty recommendations. In the same guidance, the DOJ announced that where companies implement robust compliance programs, self-report wrongdoing, cooperate in Division investigations and take remedial action, they may be eligible for DPAs.

The DOJ guidance instructs all federal prosecutors to consider three overarching questions when evaluating corporate compliance programs: (1) "Is the corporation's compliance program well-designed?"; (2) "Is the program being applied earnestly and in good faith?"; and (3) "Does the corporation's compliance program work?"

Prosecutors are instructed to consider nine elements when determining whether a company's antitrust compliance program is robust. The DOJ guidance identifies "antitrust risk assessment techniques" as being one of those essential elements. According to the guidance, risk assessments play the critical role of enabling a company to tailor its antitrust compliance program to the company's specific industries and any specific antitrust risks that may emanate therefrom. In the unfortunate event that an antitrust violation occurs, a corporate antitrust compliance program that does not include regular risk assessments may be deemed insufficient in the eyes of the DOJ, which may, in turn, negatively affect prosecutorial decision-making at both charging and sentencing. For the text of the DOJ's guidance, see Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations.

This section discusses initial antitrust risk assessment design considerations. There are generally two steps to a risk assessment: the first step is to identify the business risks, and the next step is to assess those risks considering the likelihood of their materialization and the consequences of a breach.

Regarding the first step, all antitrust risk assessment plans share common features such as questions and information-gathering activities based on the plain language of the federal antitrust laws and the most frequently encountered "textbook examples" of antitrust offenses based on those laws. While each antitrust lawyer may phrase the questions in a slightly different way when interviewing clients as part of an antitrust risk assessment, every risk assessment needs to contain questions designed to assess the presence or potential risk of:

• •Price-fixing
• •Bid-rigging
• •Boycott
• •Market division or allocation
• •Wage fixing and "no poach" agreements
• •Exchange of commercially sensitive/strategic information
• •Monopolization or attempted monopolization
• •Tying
• •Exclusivity agreements
• •Reciprocal dealing
• •Resale price maintenance and price discrimination (depending on the nature of the client's business)

At a high level, this list of antitrust violations and potentially risky antitrust practices covers the antitrust "waterfront" and drives a certain portion of the content found in virtually all antitrust risk assessments. These violations are discussed below in the section "The Antitrust Questions Everyone Should Ask" under Formulating a Risk Assessment Plan.

The second step of your antitrust risk assessment should consist of questions, document review, and other information-gathering activities expressly driven by your client's unique business profile, which includes its corporate culture, organizational structure, product lines, business methods, legal and institutional history, and strategic plans. You must tailor a certain portion of your antitrust risk assessment plan to your client and not rely solely on generic antitrust concerns or stock antitrust questions to drive your questions and other information-gathering activities under the plan.

As described more fully in the practice note Antitrust Compliance: Risk Assessment, the content of your antitrust risk assessment plan will consist of a mixture of these two components.

Generally, you should also work with your client to align your antitrust risk assessment plan with the company's general approach to compliance and risk management. You should contact company personnel working in these areas as part of your risk assessment because they are typically valuable sources of information about the company and, given their job functions, can frequently offer additional insights into potential problem areas you will want to explore further.

No "One Size Fits All"

Every company, even companies in the same industry, can have somewhat different antitrust risk factors due to their different product or service lines, unique corporate culture, organizational structure, hierarchy and methods of doing business. For example, a company with an "anything goes as long as we make money" type of corporate culture obviously presents greater antitrust risks than a more conservative company. A company with a cautious and risk-averse corporate culture in which employees at all levels are given very little discretion to act on their own likely faces fewer antitrust risks in its daily business.

There can even be different antitrust risk factors inside different parts of the same organization. For example, a company that has a decentralized and non-hierarchical structure where employees have discretion to act on their own at each branch location may present a variety of business behaviors and antitrust risk factors depending on the prevailing office culture and business practices at each branch. These are just two examples out of many unique risk factors your client may display. You will need to tailor your risk assessment questions and document review efforts to the unique characteristics of your client.

The bottom line is there is no "one size fits all" antitrust risk assessment tool. As a general design approach, you must always consider your client's unique business profile and circumstances, identify and assess which risks are most relevant to your client and draft the content of your antitrust risk assessment accordingly. For more guidance on building the content of a risk assessment plan, see the practice note Antitrust Compliance: Risk Assessment.

Align with Your Client's Existing Risk Management Resources and Approach

You will find that many companies have already hired personnel, devoted resources, implemented tools and instituted policies and procedures designed to ascertain and mitigate various kinds of organizational antitrust risks. For example, they may already conduct enterprise risk assessments to identify the strategic, operational, legal and financial risks to which the company is exposed. Many companies have internal departments or offices that perform these risk management functions. These departments are known by a variety of titles such as: internal audit, investigative services, accounting, financial management, compliance, risk management or legal. While professionals working in these or other similarly named departments (e.g., treasurer, controller, comptroller) have different skill sets and professional experiences, they can be valuable people to consult and you should contact them as part of your risk assessment efforts. Conversations with these individuals will help you establish a baseline of information as you begin your risk assessment.

Aligning your antitrust risk assessment initiative with your client's overall approach and methodology to risk management can also be beneficial in gaining quicker client acceptance of your antitrust risk assessment initiative. It is also often more cost-effective and efficient to align your efforts with your client's existing risk management resources, methodology, and approach, as well as leverage existing in-house risk management knowledge, personnel, and expertise rather than starting from scratch. By interviewing and building rapport with these in-house resources, existing risk management programs and your own antitrust risk assessment efforts can be mutually beneficial.

Who Should Conduct the Risk Assessment and How Often?

An antitrust attorney who works either as the company's outside counsel or who is employed as an antitrust lawyer by the company itself should take the lead in any antitrust risk assessment. Only an antitrust specialist will be able to perceive the antitrust implications of the company's various business practices. It is also important that an attorney conduct the risk assessment to be able to protect his or her notes and findings under the attorney-client privilege and work product doctrine. A lawyer without antitrust expertise or with limited familiarity with antitrust law is better than a non-lawyer as a leadership choice; but, such a lawyer may still miss identifying significant antitrust risks within the company due to the lack of antitrust expertise.

When leading an antitrust risk assessment project, you should contact and leverage the knowledge and skill sets of any in-house lawyers as well as key personnel in the compliance and risk management areas of the company. In-house counsel as well as compliance and risk management employees can give you valuable insight and information about the internal workings of the company and the legal risks it faces on a day-to-day basis. They can also provide you with information about any prior antitrust enforcement or compliance activity involving your client. You should leverage their expertise while at the same time maintaining your leadership of the project and independence of judgment. Any work or contributions they may make should be characterized in writing as undertaken at the direction and request of legal counsel. By doing so, their work can be protected under the work product doctrine and from discovery such as the attorney-client privilege should you need to assert either of these defenses in response to a discovery order.

A company should conduct risk assessments periodically for maximum effectiveness to respond to the evolving circumstances of the company's risk exposure, as well as evolving antitrust case law and enforcement policy. The recommended frequency for antitrust risk assessments may vary depending on your client's business and industry. For instance, fast-paced changes in your client's company or industry or rapid developments in the antitrust case law as it relates to your client or your client's industry may argue in favor of more frequent risk assessments.

Generally, antitrust risk assessments should take place annually. Risk assessments of newly acquired companies (i.e., in an equity deal) or business assets (i.e., in a non-equity asset deal) should take place promptly at the time of acquisition. You should also recommend an antitrust risk assessment if your client has been the subject of adverse antitrust agency action (e.g., warning letter, cease and desist order, consent decree, lawsuit or investigation). During all follow-up risk assessments, you should incorporate any progress in antitrust risk assessment tools, technologies, or methodologies that may have occurred since the time of your client's last risk assessment. Lastly, you should consider integrating your risk assessments with periodic monitoring policies as discussed in the practice note entitled Antitrust Compliance: Program Monitoring.

Limiting Publicity and Awareness of Risk Assessment

Advise your client that an effective antitrust risk assessment must be conducted on a largely confidential basis. The company should neither issue a company announcement nor, as a general matter, give employees warning. Instead, the minimum number of employees should be apprised of your authority to conduct the risk assessment, as is necessary for you to be able to conduct the next round of employee interviews and review of company documents. Obviously, you cannot go into the client's offices incognito without any proof of your authority or advance introduction from the client. Executive managers will need some warning of your arrival. However, too much warning and explanation of your activities raise the risk that those with whom you will be meeting will have time to coordinate their narratives prior to meeting you and to destroy potentially incriminating office files or company documents before you have a chance to examine them.

You and your client should keep publicity to an absolute minimum, and employees should be instructed to keep your visit and activities highly confidential. You should instruct every employee with whom you speak that they must not disclose the nature or purpose of your visit, or describe, disclose, and discuss any aspect of your interactions with them to anyone else without your prior authorization. Employees may need to seek such authorization from you if their supervisors demand to know where they have been, why they were meeting you or why they are providing you with company documents. To maximize effectiveness, it is best practice for you to obtain your client's agreement to these ground rules.

Keeping in mind the general design parameters and considerations explained in the practice note Antitrust Compliance: Drafting Policies and Procedures, you should follow these nuts-and-bolts steps in formulating and carrying out your antitrust risk assessment plan.

Data-Gathering Sources

You should gather information about your client's antitrust exposure from the following two data sources:

• •Interviews with employees
• •Review of existing company documents, policies, manuals, reports, systems and controls

Interviewing employees is an indispensable tool in conducting risk assessment. You should advise your client that you will be conducting a series of such interviews of appropriate personnel across the company, in-person or by phone depending on the location and the client's comfort with reimbursement of travel expenses. Oral interviews allow you to see and hear the employee's reaction to your questions, and allow you to ask follow-up questions depending on the employee's preceding answers during the same session. Your interview notes will also be protected by some combination of the work product doctrine and/or attorney-client privilege and thus protected from discovery. Written questionnaires should, as a general rule, never be used because of the risk that employees will use careless or dangerous antitrust language in writing their responses and the risk that the employees will forward their completed questionnaires to third parties or take other actions that cause you to inadvertently lose the privilege over those documents.

Don't ask leading questions in your employee interviews. Most employees are sufficiently smart and perceptive to know that there is a right and wrong answer to questions such as, "Do you ever meet with your competitors and agree to fix prices with them or rig customer bids with them?" Other such questions will similarly cause employees to hide information from you and avoid giving truthful answers (e.g., "Do you ever meet with an employee working for a competitor and agree to divide up customers or divide up geographic territory among yourselves, so you don't have to compete head-to-head with one another?"). An employee devious enough to engage in illegal market division activity will be devious enough to avoid giving you an honest answer to your question. Instead, you should ask simple open-ended questions such as "Tell me about your sales process." If they need further prompting you can ask them to take you step-by-step through their process (i.e., the sales pitch, bid assembly and submission, competition with other bidders, how bids are awarded, etc.). These kinds of questions will get a sales manager talking and you should listen carefully. Watch the employee's non-verbal reaction to your questions as well. Is the employee uncomfortable and hesitant as if they are trying to make up an answer they think you will want to hear? Does the employee seem relaxed and spontaneous in answering? You should take notes concerning the verbal answer as well as any visual observations you think might be relevant.

You should begin by interviewing the most senior managers and department heads. These executive-level interviews will give you a comprehensive overview of the entire division or department. From there, you can then decide which managers and employees within that department or division you would like to interview next as you work your way through the organization. You may move from an all-encompassing, but perhaps less detailed, high-level overview to a more "ground-level" view of the business.

Unless you have specific reasons for interviewing a particular department or area first, you should generally begin by interviewing the legal, compliance and risk management areas, because professionals in these departments or functions will give you a quick sense of any problems or concerns at the company that may touch upon antitrust risk, such as a history of antitrust challenges, lawsuits or investigations at the company or instances of weak legal compliance controls generally, which may be an early indication that antitrust compliance controls might also be weak or nonexistent. People such as the chief legal officer / general counsel, staff lawyers, the company's chief compliance officer and compliance staff, or the head of internal audit or investigative services, by definition, tend to have deep knowledge about the company and can tell you what to look out for and to whom you may want to talk next. They may also be very helpful in identifying which areas of the company warrant enhanced scrutiny, given a department's history of weak risk management or past compliance violations. Generally, professionals in the legal, compliance, and risk management areas share your goals and have a vested interest in the success of your effort since you will essentially be helping them to bolster, enhance and increase awareness of risk assessment at the company.

Sales and marketing departments should also be at the top of your interview list, given the risks set out below. Employees in these departments may be very social and, when socializing in the business community and building a network of external contacts, sales and marketing personnel can come into regular contact with individuals working for your client's competitors. If sales and marketing personnel discuss bidding, pricing, or other competitively sensitive topics, or reach agreements with their competitors about these topics, it creates antitrust risk. Sales and marketing personnel tend to also be natural risk-takers.

To get a full picture, you will generally want to interview at least the heads of every department within your client's organization. There is no magic formula, but you will know after interviewing one or two senior-level people in each department whether the functions and activities within those departments merit further antitrust scrutiny. You may even find that departments you previously eliminated from your risk assessment may come back onto your interview list after you learn additional information from a separate department that raises questions or concerns.

For instance, suppose you interviewed the top two people in the HR department; much later, you learn from interviewing an IT security employee that HR personnel have openly spoken about agreeing with HR counterparts working for competitors regarding salaries paid to IT professionals. This information would raise price-fixing red flags. Now you must go back and carefully question the HR department again and interview more HR employees to gather more facts. You will need to be prepared for this type of occurrence during your antitrust risk assessment and be flexible enough to change course and direction and to revise your plan in response to information learned during your assessment.

Review Existing Company Documents, Policies, Manuals, Reports, Systems and Controls

You should review existing company documents, policies, manuals, reports, systems and controls. These written or printed materials (broadly defined) will provide you with a wealth of information about the company and its operations and insight into the company's antitrust risk exposure because of those business methods. You should also leverage the company's own risk-assessment reports to the extent that any of the company's risk-management departments have generated any documents that might give you an insight into antitrust risk. You should ask any of the departments that may oversee risk management for their reports, assessments, analyses and any other documents that might be responsive to your goal of risk assessment. For the many titles these departments may use depending on the company, please see the practice note Antitrust Compliance: Drafting Policies and Procedures.

You should ask for company materials in each of your interviews. As you engage in later interviews, your request will serve as a check against omissions made by earlier employees who provided you with the company materials. These omissions may have been intentional or inadvertent, and you will have to use your best judgment as to why earlier interviewees neglected to provide the requested material. In any case, you should continue to ask for company materials as a due diligence step and because you may receive previously unseen material as you delve deeper into the organization. Middle managers may provide you with written materials that executive officers in their company are not even aware of. When in doubt, ask to see the company documents that deal with or address the topics you and the interviewee have discussed. After reviewing all the materials, decide what can be put aside and what merits further attention and questioning.

Inevitably, every lawyer conducting an antitrust risk assessment will wonder how much is enough when reviewing company documents. You will want to review a baseline of company documents that represent a thorough and comprehensive effort. These documents will include items such as:

• •Any company short-term and long-term business plans
• •The company's strategic plan
• •The company's code of conduct or ethics
• •All company risk-management or risk-assessment reports, such as any internal audit or investigative service reports or findings
• •All compliance and legal department documents dealing with legal or compliance complaints, investigations, allegations, shortcomings, assessments, lawsuits, or investigations

You should use the data you gather from interviews and company documents to identify risks and input the data into a risk assessment matrix as described below for quantification and assessment.

The Antitrust Questions Everyone Should Ask

You should consider the below list of topics and questions in the context of each business department, division or operation. You should also keep these topics in mind while you review the company materials. You should explore these topics, looking for situations in which the client may be the perpetrator or the victim of illegal antitrust conduct. Lawyers often focus on the former, while ignoring the possibility that the client may be the victim of illegal antitrust conduct. If your client is a victim or a potential victim, you will want to bring this to your client's attention and explore the possible actions to take, such as bringing an antitrust lawsuit against the perpetrators and reporting the illegal activity to the relevant federal and state antitrust enforcement agencies.

Price Fixing

Price fixing can be horizontal (e.g., between two competitors) or vertical (e.g., between a wholesaler and retailer). Therefore, it is important to ask questions that solicit information about potential price fixing in different ways depending on the departmental affiliation and job function of the employee you are interviewing. For instance, you should ask sales and marketing personnel how they set prices and whether they have ever agreed with anyone outside the company (e.g., competitor, broker or consultant) on the prices they charge or the price they submit to a customer as part of a quote or a bid. If your client is a wholesaler or supplier, you will want to explore price setting in that context. Remember that price fixing is not limited to sales activity; as discussed above, price-fixing concerns can arise in the HR context if HR departments at competing companies engage in fixing the salary of employees.

You should consider whether there are price-fixing implications in your client's business, the job function and departmental affiliation of the employees you interview, and the content of the company materials to come up with a line of inquiry adapted to such variables. For instance, you should ask sales and marketing personnel to describe how they price and sell their products. Additionally, you should request sales and marketing documents, policies, guidelines, manuals, and anything else in writing that the company has issued regarding price-setting and sales activity. HR employees should be asked about whether they know of agreements to fix wages or terms of employment, or to not solicit employees from other companies. (Note that antitrust law applies to companies that compete for talent, even if they are not in the same industry.)

You may need to ask follow-up questions depending on an interviewee's answers. For example, if sales personnel describe regular meetings with their counterparts from competing companies during which they discuss prices to charge customers, you will need to ask further questions about who is present, the frequency of such meetings, whether these pricing agreements were verbal or written, whether anyone referred to or described these agreements in an email or in other written documents (e.g., meeting minutes or internal company memos).

Market Allocation or Division

Illegal market allocation or division can occur in a variety of ways. You should ask questions and review documents with the goal of probing whether the client is agreeing with any third party, especially a competing company, to allocate or divide up customers, geographic regions or territories, products, suppliers, consultants, brokers, agents, wholesalers, retailers, or any other parties. Again, you will need to adapt the line of questions to the business profile of your client and the job function of the employee you are interviewing. If your client does not encounter or use brokers or agents, then those kinds of questions may be inappropriate, and you should stick to asking about customer or geographic market allocation or division. It is up to you to adapt the questions to the circumstances of the client and the employee you are interviewing. Finally, as always, follow-up questions may be appropriate depending on the employee's answer to your initial questions.

Boycott Activity

Illegal boycott agreements can take a variety of forms and be either horizontal or vertical in nature. A horizontal agreement to boycott a third party (e.g., customer, vendor, consultant or supplier) is between your client and one or more of your client's competitors. In contrast, a vertical boycott agreement exists between your client and a party that is "upstream" or "downstream" from your client, such as one of your client's suppliers, customers or another party that is not at the same level of competition as your client. The victim or target of a vertical boycott would be a third party or parties (e.g., competitor, customer, supplier, vendor or consultant). You should ask about possible boycott activity or agreements in a variety of ways to probe whether any of these boycott agreements exist. Depending on your client's answers, you should follow-up until you have all the relevant facts and company documents.

Monopolization and Attempted Monopolization

You should explore your client's and its competitors' market strength to determine whether your client should be concerned about monopoly power. Market share is a proxy for market power, so you will need to conduct interviews, review company documents and read industry reports containing market share data to develop a clear picture of the market shares of each of the companies competing in your client's industry, including your client. You will need to draft a series of questions based on the elements of these two offenses. For a discussion of the elements of these offenses, see the practice note Antitrust Claims: Identification and Analysis. As always, you should adapt the specifics of your questions to the business profile of your client and the job function of the employee you are interviewing.

Tying

Illegal tying involves conditioning the sale of one product (the tying product) on the purchase another product (the tied product), where the client has market power in the tying product—which is a necessary element of an illegal tie. You should develop a series of questions based on the various elements of the tying offense and adapt those questions to the business circumstances of your client and the job function of the employee you are interviewing. For a discussion of the elements of tying, see the practice note Tying Agreements.

Exclusivity and Exclusive Dealing

Exclusivity or exclusive dealing arrangements are not illegal, per se. The legality depends on various facts and circumstances as described under the antitrust doctrine known as the rule of reason. For a detailed discussion of exclusive dealing, see the practice note Exclusive Dealing Arrangements and Anticompetitive Concerns. You should ask questions derived from the rule of reason test, including exploring the nature of the exclusive agreement; the market strength and identities of the parties involved; the justification for the agreement; the procompetitive and anticompetitive effects of the exclusivity agreement (including economic impacts on consumers and others); and the duration, scope, and other price and non-price terms of the agreement. Tailor your questions to your client's business and the job function of the employees you interview. Ask open-ended, non-leading, non-judgmental questions designed to get the employee talking and ask follow-up questions depending on their initial answers until you have fully explored the topic.

Reciprocity and Reciprocal Dealing

Reciprocal dealing, also known as reciprocity, is basically a "mutual back-scratching" agreement by which one party tells the other "I'll buy from you, if you buy from me." Reciprocity may have the effect of excluding or at least restricting competition. Reciprocal dealing can take a variety of forms depending on the business—you should consult the latest textbook definition of this antitrust offense and draft questions based on the elements of this cause of action, which you should customize to the business circumstances of your client and job functions of the employees you interview. As above, ask open-ended, non-leading, non-judgmental questions designed to get the employee talking and ask follow-up questions depending on their initial answers until you are satisfied you have fully explored this topic.

Resale Price Maintenance and Price Discrimination

Because these topics may or may not be relevant to your client's business, you should consider resale price maintenance and price discrimination in light of your client's business. For a detailed discussion of resale price maintenance, see the practice note Resale Price Restraints in Vertical Agreements. If you think this may be an area of concern, then develop questions based on the law and customize these questions to your client's business profile and the job function of the employees you interview.

What Are Your Client's Greatest Competition Risk Areas?

The standard list of antitrust offenses is a valuable resource for developing the content of an antitrust risk assessment to be used during employee interviews and in requesting and reviewing company documents. However, you will need to go further. Another step in developing the substantive content of your antitrust risk assessment tool is to identify the most significant competition risks that your client faces. You should think about the following factors in developing additional lines of inquiry as part of your risk assessment:

Engaging in Activities Involving Competitor Contacts

Trade Association Activity

Clients may not recognize that mere membership and participation in a trade association can expose them to antitrust risk. Trade associations and other similar competitor interactions do not shield joint activities from antitrust scrutiny as there have been numerous enforcement actions arising from illegal agreements developed in trade associations. You should ask the employees about trade association membership and participation. If they are members of an association, you should ask detailed questions about the association's activities, nature of the meetings, and the employee's involvement. Additionally, ask them to provide you with all written trade association materials, so that you can review trade association agendas, meeting minutes, charters, and bylaws for antitrust risk. You will want to determine whether an antitrust statement is read at the beginning of every meeting cautioning participants not to engage in any conduct or activity that violates the antitrust laws. You will also want to determine whether an antitrust lawyer or other legal counsel is present at the meetings.

You can develop additional questions depending upon the specific activities of the trade groups. The following antitrust "hot button" activities may or may not apply to your client's own trade groups but should be considered as you go about creating the content of your risk assessment tool (i.e., your list of questions and document requests). It is illegal to use information-sharing programs, standardized contracts, operating hours, accounting, safety codes, or transportation methods as a disguised means of fixing prices. One area of significant concern involves competitors exchanging price or other sensitive business data, whether within a trade or professional association or another industry group. Any data exchange or statistical reporting that includes current prices or information that identifies data from individual competitors can raise antitrust concerns if it encourages more uniform prices than would otherwise exist.

Other Competitor Contacts

In addition to questions about the main antitrust violations (e.g., price fixing, bid rigging, boycott, market allocation or division) and inquiries regarding trade associations, you should ask a few "catch-all" questions to determine whether the client and company employees have any other competitor contacts that may lead to antitrust risks. Ask employees to list all instances, circumstances, situations, or occasions where they have had one or more contacts with one or more competitors. After the usual reply listing trade group meetings and perhaps professional-education conferences, you may find that clients have close friends or family members who work at a competing company. Employees may interact on a regular basis and "talk shop" with these close friends or family. If they are "talking shop," then they are engaging in potentially high-risk antitrust behavior, depending on what their respective job functions are and what they spoke about. Someone may point to these social contacts as the method by which your client and the competitor illegally coordinated their commercial conduct. In this scenario, the employee and the close friend or family member would be at the center of the conspiracy. You will need to get all the details of these conversations from the employee to determine whether they were fixing prices or bid rigging, or merely complaining about the bureaucracy and excessive paperwork at their respective companies (for example). The former topic is high-risk; the latter is less so. There is always some level of increased risk whenever there are contacts or dealings with competitors. Even if such contacts or dealings are benign, your client will always incur some residual antitrust risk because of concerns around appearances.

Joint Ventures / Strategic Alliances

A joint venture (JV) or strategic alliance between two companies, including two competitors, can be legal if created and operated in a manner consistent with the antitrust laws. You should ask whether the company is involved in any of these arrangements. JVs can be equity-based or contractual in nature. An equity JV is one in which the JV partners each own stock in the JV entity. A contractual JV is one in which the JV has no independent existence as a stock entity and is merely founded upon one or more contracts between the JV partners (your client and another company), in which they pledge to act in concert with one another to achieve a business objective. You should also ask about "strategic alliances" as this is a term often used by companies for arrangements which, in an antitrust context, are in fact JVs.

When asking your client and company employees to describe any JV or strategic alliance, ask whether the arrangement involves stock ownership or is contractually based. Additionally, ask to see all documents creating, addressing, describing or involving the relationships (e.g., legal guidance and legal documents). After you determine the nature of the relationship from these documents, you should ask for the contact information of the lawyer responsible for advising on the arrangement. You should talk to this lawyer to determine the degree to which they considered the antitrust dimensions of the arrangement, what antitrust advice they have given to the client, and what steps they took while drafting the JV documents to manage and mitigate antitrust risk. You should ask the lawyer to forward you all such materials and written advice for your review. As a check against what the lawyer sends you, and vice versa, you should also ask the employees whether they recall or are aware of any antitrust advice or guidance (verbal or written) that they were given in connection with operating a JV or strategic alliance. This antitrust guidance may have included written memos, "antitrust dos and don'ts," verbal guidance delivered on a conference call, legal guidance in written compliance materials, or other less formal guidance such as an email from an in-house lawyer or a lawyer from an outside firm.

If the JV involves a competitor, you must pursue all the facts including the antitrust advice that was delivered to the client and all other antitrust considerations that were (or were not) incorporated into the legal documents that created the arrangement. You may want to check recent court opinions and laws concerning a JV, and draft questions based on the current laws that you can tailor to your client's specific business circumstances and JV arrangement.

Geographical Considerations

You need to consider the jurisdictions in which your client does business for your antitrust risk assessment. This practice note assumes that your client has at least some U.S. presence and therefore is subject to U.S. federal antitrust laws. However, your client may have additional business operations or sell products in one or more non-U.S. jurisdictions. If that is the case, then you must look at the antitrust laws (also known as competition laws) of these other jurisdictions and ask questions based on those laws just as you did for the U.S. federal antitrust laws. The U.S., Canada, and European Union countries generally have among the most developed antitrust laws. However, there is great variation in the existence, development and enforcement of competition laws in countries outside these regions. Cultural norms toward business ethics and antitrust conduct in these regions can also be different from other regions. You will need to be mindful of local variations in developing your interview questions and assessing antitrust risk for your client if the company has operations in other countries.

The Nature of Your Client's Business and Industry

Past and Current Antitrust Investigations and Litigation

You should ask your client about any previous antitrust violations and develop employee interview questions and document-review requests based on the past violations, if they exist. In particular, focus on probing areas or departments of the company that caused the antitrust violation because they are more prone to misconduct. Ask for all documents related to past antitrust violations and check to make sure that past business practices that led to the violation have been changed and reformed to bring the company into antitrust compliance. If your client has a past antitrust violation, you should talk to more people in the offending areas or departments, and interview people from top to bottom of the hierarchy to make certain that you are getting all the facts, and that the company has tightened its compliance controls and changed the relevant business practices since the time of the violation.

Industry-Specific Risks

Some industries are more susceptible to antitrust compliance violations. For example, price fixing is more likely in an industry with commodity products, very few competitors, and high economic or regulatory barriers to entry that prevent new competitors from entering. Because few competitors exist, they probably run into one another frequently and thus have more opportunities to engage in illegal antitrust activities. Furthermore, the economic rewards of an illegal conspiracy may be great, especially if only a few competitors divide up the profits of an entire industry between themselves.

Therefore, antitrust enforcers are inclined to scrutinize industries with few competitors. You will want to include in your risk assessment questions designed to uncover these kinds of activities and make sure you look for evidence of this type of conduct as you go through company documents. Even if there is no indication of such illegal conduct, the paucity of competitors means that your client faces ongoing risk every time a company personnel crosses paths with one of your client's competitors. This can lead to concerns around appearances. You should include questions asking company personnel whether and how frequently they have in-person, telephone or electronic contact with competitor company personnel. You should review all such contacts as part of your risk assessment.

Aside from highly consolidated industries with few players, you should review your client's industry against a list of antitrust laws and potential violations to determine whether your client is exposed to other antitrust risks. For instance, if your client is a hardware or software company or in the utilities or electric power or transmission industry, you should consider including in your risk assessment questions concerning illegal tying activity in which the purchase or sale of one product is conditioned on the purchase or sale of another product. Sometimes called a "packaged sale," your client may run the risk of engaging in illegal tying. For example, in the electricity industry, tie-ins are most likely where there is a monopoly of a relevant product or service, such as transmission of electricity, and that monopoly is used to require the purchase of other products or services that a buyer might have preferred to purchase elsewhere on other terms. In a regulated industry like the utilities sector (e.g., electricity transmission), the purpose of a tie-in is often to circumvent price regulation. If you have such a client, you will need to question them about their sales practices, including the existence of any "packaged sales," as part of your antitrust risk assessment.

History of Sector Scrutiny by Antitrust Enforcers

You should also consider whether your client operates in a sector that has experienced significant antitrust enforcement agency scrutiny, investigations, or litigation. For instance, U.S. politicians and antitrust officials have devoted a significant amount of time to scrutinizing, challenging, and criticizing practices found in the U.S. healthcare sector. Whether your client is a hospital, pharmaceutical company, health maintenance organization (HMO) or nursing home chain, you should review the latest FTC and DOJ enforcement actions, consent decrees, lawsuits and case summaries found on the two federal agencies' websites to gain an understanding of problematic business practices you need to question your client about as part of your antitrust risk assessment. Even for industries that do not have such a reputation, you must be careful to assess in what specific ways misconduct may be more prevalent in that industry.

Intellectual Property Considerations

Intellectual property (IP) rights protect an inventor's idea. At the same time, however, they may exclude others from competing against the IP. Considerations around the intersection of IP and antitrust laws are prime risk areas. For example, for many technology companies, IP is the key asset. The antitrust analysis of mergers and acquisitions is routinely driven by overlapping patent portfolios, potentially redundant R&D programs and the product pipeline. Ask detailed questions about your client's IP portfolio, especially if your client is a technology company. Ask to see and review documents and materials on this topic, including any information on disputes or litigation. You should also review prior M&A deals and joint ventures involving IP, especially if your client is a technology company that has engaged in M&A activity or joint ventures with another technology company. You should also ask employees about the history of any patent or other IP disputes, including litigation.

Evaluating Your Data Using an Antitrust Compliance Risk Matrix

Antitrust lawyers and clients may have different preferences as to the method of reporting the risk assessment results. You and/or your client may favor a primarily narrative form of final risk assessment report that includes data (e.g., number of employees you interviewed, type and number of company documents you reviewed) as well as perhaps some helpful charts, tables or graphs, but that is not dominated by numerical data. By contrast, if you and your client have a robust appetite for quantitative data, exhaustive metrics, and a generally more "quantitative or mathematical" approach, then your report will consist of multiple charts, tables or graphs throughout with the raw findings measured, spliced or broken-out in a variety of ways to display the data from a variety of quantitative angles. You should be sensitive to your client's expectations and corporate culture in this respect and work to tailor the report you tender to the client to the kind of report you know that your client has asked you for or plainly prefers and expects from its own managers.

If you have a client that expects a more quantitative or mathematical type of report, then you will find the following template, accompanying guidance and description extremely helpful. Below is a well-known matrix that some companies and their lawyers have used for antitrust risk assessment. Naturally, you should counsel your client that the matrix can be adjusted based on the company's nature, stylistic preferences for written reports, and needs. You can also find two examples of risk assessment matrices in the International Chamber of Commerce (ICC) Antitrust Compliance Toolkit. A risk assessment matrix allows you to plot and rank the likelihood of a risk against the severity of the infringement/consequences, and then rank in order of priority. The idea behind such a matrix is to help you to prioritize risks based on their probability of occurrence and on their potential impact if they occur.

Risks are placed on a matrix based on two criteria:

• •Likelihood. The probability of a risk of misconduct occurring.
  • o For example, frequent contact with competitors through social events and/or large number of sales staff are circumstances to consider as they increase the likelihood of illegal agreement.
• •Consequences. The severity of the impact or the extent of damage caused by the risk. The ICC toolkit provides the following list of considerations when determining the impact of relevant risks:
  • o Negative reputational impact
  • o Corporate fines, which may increase with instances of recidivism
  • o Damages claims
  • o Distraction from core business activities
  • o Legal fees
  • o Nullity of agreements and/or anticompetitive clauses
  • o Fines and, in some cases, professional disqualification and criminal liability for managers and employees
  • o Loss of employees in the event of internal disciplinary proceedings

These data points can then be used to develop a ranking system to determine the level of priority that should be attached to a risk depending on its likelihood and potential impact. For example, you may advise your client to use the following scoring system (with examples provided for each criteria). Please note that these examples are for illustrative purposes only, and some examples do not apply to your client's business practices. Based on your legal experience and your client's specific circumstances, you may also disagree with the risk category of one or more of these examples. Generally, you will find broad consensus among antitrust practitioners that the business practices described below carry the risk levels under which they are listed:

• •Negligible
  • o Non-price restrictions in dealer agreements
• •Marginal
  • o R&D JVs
  • o Trade association attendance
  • o CEO addressing industry conference
• •Material
  • o JVs with competitors
  • o Discussing resale prices and price promotions with dealers
• •Critical
  • o Price fixing, market sharing and bid rigging
  • o Attendance at industry events where prices/volumes are discussed or agreed
  • o No-poach and wage-fixing agreements
  • o Loyalty rebates/exclusivity in very high market-share product segments
  • o Complaints from dealers about other dealers' prices or selling to their customers

Below are two ICC antitrust risk assessment grading graphs that combine and map the above information. Many ICC member-companies use these graphs. See ICC Antitrust Compliance Toolkit.