DOJ Focusing Antitrust Scrutiny On The Boardroom: Is Your Board Ready?

• Published date: 04 November 2022
• Subject Matter: orporate/Commercial Law, Antitrust/Competition Law, M&A/Private Equity, Corporate and Company Law, Antitrust, EU Competition
• Law Firm: Cooley LLP
• Author: Ms Megan Browdie, Jacqueline Grise, Howard Morse, Kathleen O'neill, Parker Erkmann, Dee Bansal, Ethan Glass, Beatriz Mejia, David Burns and Sharon Connaughton

In April 2022, Assistant Attorney General Jonathan Kanter, head of the US Department of Justice's Antitrust Division, fired a warning shot to companies: "For too long, our Section 8 enforcement has essentially been limited to our merger review process. We are ramping up efforts to identify violations across the broader economy, and we will not hesitate to bring Section 8 cases to break up interlocking directorates."

In September 2022, the Antitrust Division issued a spate of letters to public companies and private equity investors alleging that the companies' board composition violated Section 8. On October 19, 2022, the DOJ announced that seven directors had resigned from five corporate boards in response to concerns raised by the Antitrust Division.

The resignations unwound five alleged interlocks - in each case where at least one of the companies identified the other as a competitor in its Securities and Exchange Commission filings, although none of the companies admitted violating the law. The DOJ's press release quoted Kanter promising more enforcement actions: "The Antitrust Division is undertaking an extensive review of interlocking directorates across the entire economy and will enforce the law."

Section 8: What's an interlocking directorate?

Section 8 prohibits a "person" from serving as an officer or director of two "corporations" that are "competitors." It is a strict liability statute designed to "nip in the bud incipient violations of the antitrust laws by removing the opportunity."¹ Specifically, Section 8 seeks to prevent such interlocks from leading to the exchange of competitively sensitive information or collusion.

Violations under Section 8 generally turn on the interpretation of the terms "person," "corporation" and "competitors," as well as the applicability of certain safe harbors. The DOJ and the Federal Trade Commission (FTC) have generally taken a very broad interpretation of each of these terms - i.e., "person" is interpreted to include individuals, corporations and unincorporated entities, while "competitors" is interpreted as companies in the same industry that offer substitutable products to similar customers - though whether such broad interpretations would hold up in court is not clear.

Importantly, in enforcing Section 8 prohibitions, the DOJ is limited to seeking injunctive relief, while private parties may seek either injunctive relief or treble damages. The DOJ can and does sue for injunctive relief, the violation of...