Recently, the Department of Justice announced that it filed a lawsuit against Adobe Systems, Inc., Apple Inc., Google Inc., Intel Corporation, Intuit, Inc. and Pixar (the “Do Not Call Defendants”), alleging violations of Section 1 of the Sherman Act, 15 U.S.C. 1 related to their allegedly entering into agreements not to cold call each other’s employees. U.S. v. Adobe Systems, Inc., et al., Case No. 1:10-cv-01629 (Sept. 24, 2010) [complaint]. The DOJ alleged that these “Do Not Call Lists,” constituted naked restraints under Section 1 and per se illegal. The DOJ, that same day, disclosed that it had entered into a proposed settlement with these defendants, which remains pending for public comment. The Defendants have denied liability.
While the fact that the conduct alleged — entering into a flat out prohibition against calling another competitor’s employees to hire them — gave rise to concern at the DOJ may not be terribly newsworthy, the DOJ’s analysis of the situation in its Competitive Impact Statement (attached) is.
First, some background is necessary. The DOJ contended that the defendants, at various times starting in 2005, agreed not to call each other’s employees for employment. With the exception of Intel, each of the Do Not Call Defendants was alleged to have created internal “do not call lists” related to the competitor’s employees. These alleged agreements precluded the cold calling of the competitor’s employees, regardless of geographic location or position. The DOJ, looking at precedent in its complaint in U.S. v. Ass’n of Family Practice Residency Doctors, No. 96-575 CV-W-2, Complaint at 6 (challenging guidelines used for residency programs for senior medical students) and the illegal agreement found U.S. v. Cooperative Theaters of Ohio, Inc., 845 F.2d 1367 (6th Cir. 1988) (finding agreement not to solicit another’s customers a per se violation of Section 1), found support for its claims brought against the “Do Not Call” Defendants. The DOJ viewed there to be no difference in treatment under Section 1 between customer restraints and employment restraints, or output or input markets:
“Antitrust analysis of downstream, customer-related restraints is equally applicable to upstream monopoly restraints on employment opportunities.”
For the DOJ, the restraints placed on the employees of the Do Not Call Defendants was great. Even though these alleged agreements did not prohibit hiring of the other’s employees, the agreements interfered with the employee’s movement to another company and the pricing for those services. Competition for hiring employees in the computer industry was impacted. As the DOJ stated in its impact statement:
“Defendants’ concerted behavior both reduced their ability to compete for employees and disrupted the normal price-setting mechanisms that apply in the labor setting. These no cold call agreements . . . are facially anticompetitive because they eliminated a significant form of competition to attract high tech employees, and, overall, substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.”
Perhaps the most interesting part of the DOJ’s action here is its analysis of what conduct is not prohibited as a per se violation when restricting employment opportunities. The DOJ stated that certain limited exceptions exist to a per se analysis if the challenged agreement is “ancillary to a legitimate procompetitive collaboration“. What is considered “ancillary” is a very short list:
“To be considered “ancillary” under established antitrust law, however, the restraint must be a necessary or intrinsic part of the procompetitive collaboration. Restraints that are broader than reasonably necessary to achieve the efficiencies from a business collaboration are not ancillary and are properly treated as per se unlawful.”
In other words, agreements not to hire that are narrowly drawn to protect the interests of a legitimate joint venture are not per se unlawful but would be reviewed under a rule of reason approach. This is the only exception noted by the DOJ to its per se treatment.
In this “No Call List” matter, the DOJ contended that the agreement was not tied to a specific collaboration and was overbroad, applying to all geographies, job functions, product groups and time periods. The DOJ concluded that these agreements were not “ancillary” to any collaboration, even though there was some indication that there were some joint venture collaborations between the parties. Simply put, the DOJ sees the situation as black and white: if it is not “ancillary to a legitimate collaborative effort” — i.e. a joint venture — it is a per se violation of Section 1.
The implications of this DOJ action remain unclear. Would DOJ’s analysis have differed if the defendants had entered into this type of agreement to protect their trade secret information? Would DOJ view agreements between competitors, that are part of settlement agreements but restrain the hiring of competitor’s employees to protect those secrets, as per se violations or subject to a rule of reason analysis. Precedent would suggest that such agreements should be subject to a rule of reason analysis, Weisfied v. Sun Chemical Corp., 210 F.R.D. 136 (D. N.J. 2002), but the DOJ’s analysis is categorical and does not lend itself, at least on the face of it, to that interpretation.
For now, we will just have to put this discussion “on hold.”