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DOJ Reinvigorates Crackdown On Interlocking Directorates – Antitrust, EU Competition

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On October 19, the DOJ Antitrust Division announced that seven directors have
resigned from board positions in ten companies after the Division
raised concerns that the directors’ roles violated the
Clayton Act’s prohibition against “interlocking
directorates.”1  The move aligns with DOJ
warnings that enforcement of this prohibition is “a priority
for the Antitrust Division.”2 

The Statute

The Clayton Act prohibits an individual from serving as a
director or officer of two or more corporations if the corporations
are “by virtue of their business and location of operation,
competitors, so that the elimination of competition by agreement
between them would constitute a violation of any of the antitrust
laws” – a fact-specific inquiry in which the agencies
look to the nature of the business and geographic location of the
two corporations. 

The interlock also can be indirect, such as when the same
private equity firm appoints different representatives to sit on
the boards of competing companies. The remedy for a violation is
removal of the overlapping director and private plaintiffs may seek
monetary damages. 

How the Agencies Identify Potential Violations

The DOJ’s announcement does not specify how the interlocks
came to the agency’s attention. In the past, antitrust
agencies have learned about potential violations during unrelated
conduct or merger investigations. Recently, however, the agencies
have undertaken a more proactive search for potential violations.
While public information on potential interlocks such as U.S.
Securities and Exchange Commission (SEC) filings have long been
available, the DOJ’s latest actions show a willingness to
commit agency resources to rooting them out. In addition, the
recently enacted Corporate Transparency Act (CTA) also may provide
a source of information about potential interlocks. 

Targeted Focus on Private Equity

Both the DOJ Antitrust Division and FTC have signaled increased
scrutiny of private equity funds, generally, and
“interlocking directorates” will be a primary focus of
their enforcement.3 Traditional parent companies
have been found to be incapable of conspiring with
subsidiaries.4

Key Takeaways

The antitrust agencies are likely to continue to make the
elimination of interlocking directorates a focus of this
administration and have communicated their intention to do so
proactively. Companies concerned about potential exposure can take
steps to understand and minimize risk, including:

  • Revise board appointment policies to ensure compliance with
    antitrust laws. 

  • Review existing board memberships for potential antitrust
    violations and ask board members to list other companies where they
    sit as a director. Ask board members to update this information
    regularly.

  • Be especially cautious in the private equity context, where the
    antitrust agencies have signaled specific interest.

Baker Botts’ Antitrust and Competition Law practice is
recognized as one of the world’s leading competition practices,
repeatedly included among GCR’s “Global Elite”
listing of the 20 leading firms globally. Our expertise and bench
strength extends across the full spectrum of global mergers and
acquisitions, complex civil antitrust litigation, international
cartel matters and other enforcement investigations, and compliance
and counseling matters. Our lawyers bring sound commercial judgment
to our clients’ most challenging competition matters, along
with a deep understanding of the varied legal, technical and policy
issues that they face.

Lawyers in Baker Botts’ Corporate Department handle a full
range of corporate, securities and financing matters, including
domestic and cross-border mergers and acquisitions (M&A),
public and private securities offerings and institutional and other
specialized financings. Our corporate group is recognized for its
depth of experience, particularly in the technology space, and
several of our corporate lawyers have served as general counsel and
in-house counsel at publicly traded companies. 

Click here to learn more about our
Antitrust and Competition Law Practice and click here to learn more about our
Corporate Practice. 

Please feel free to contact the lawyers below if you have any
questions.

Footnotes

1 Press Release, DOJ Antitrust Division, Directors
Resign from the Boards of Five Companies in Response to Justice
Department Concerns about Potentially Illegal Interlocking
Directorates, https://www.justice.gov/opa/pr/directors-resign-boards-five-companies-response-justice-department-concerns-about-potentially.

Id.

3 Deputy Assistant Attorney General Andrew
Forman, https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-andrew-forman-delivers-keynote-abas-antitrust;
Chris Cumming, “Antitrust Regulators Fix Their Sights on
Private Equity,” The Wall Street Journal (Sep. 30,
2021), https://www.wsj.com/articles/antitrust-regulators-fix-their-sights-on-private-equity-11632999600;
Siri Bulusu, “Private Equity Firms Facing More Questions in
FTC Merger Reviews,” Bloomberg Law (Jan. 13, 2022), https://news.bloomberglaw.com/antitrust/private-equity-firms-facing-more-questions-in-ftc-merger-reviews.

Copperweld Corp. v. Independence Tube
Corp.
, 467 U.S. 752 (1984).

The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should be
sought about your specific circumstances.

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