DOJ Makes Good On Promise To Actively Prosecute Interlocking Directorships

• Published date: 04 November 2022
• Subject Matter: orporate/Commercial Law, Antitrust/Competition Law, M&A/Private Equity, Corporate and Company Law, Directors and Officers, Antitrust, EU Competition
• Law Firm: Venable LLP
• Author: Mr Geoffrey Garinther, Kan M. Nawaday and Katherine R. Peluso

Back in April 2022, Assistant Attorney General (AAG) Jonathan Kanter hinted very strongly that the Antitrust Division of the Department of Justice (DOJ) would be looking at Section 8 violations of the Clayton Act. That Section prohibits a person from serving on boards of companies that are competitors - also known as "interlocking directorates". 15 U.S.C. ' 19. DOJ recently made good on this promise, announcing that seven directors resigned from board positions in response to DOJ Section 8 investigations. A little over a week later, it has been reported that DOJ sent civil investigative demands (CIDs) to large private equity firms related to potential Section 8 violations. Additionally, DOJ has issued multiple letters to public companies, individuals, and investors stating it may bring lawsuits this year, alleging violations of Section 8.

These steps plainly signal that DOJ is aggressively pursuing actions to enforce federal antitrust prohibitions against overlapping membership on the boards of competing companies. According to AAG Kanter, DOJ's "Antitrust Division is undertaking an extensive review of interlocking directorates across the entire economy...." In response to DOJ's recent focus on "interlocking directorates," public companies and private equity firms should proactively review and assess the board memberships of directors, officers, or other representatives to identify and address potential Section 8 violations before becoming subject to a DOJ investigation.

What Is Section 8 and DOJ's Historical Approach to Interlocking Directorships

Section 8 seeks to prevent competing companies from coordinating competitive activities for mutual benefit through a shared director or officer. Section 8 applies to both "direct" and "indirect" interlocking directorships. "Direct" interlocking directorships occur when a person serves on the board of two competitors simultaneously, while "indirect" interlocking directorships occur when representatives of an entity serve on competing boards.

Section 8 does, however, include safe harbors. For example, serving on the board of competing companies can be lawful if: (1) the companies are horizontal competitors; and (2) the companies have "capital, surplus, and undivided profits" of more than $41,034,000 in the aggregate as of 2022. Exceptions apply also when: (1) the "competitive sales of either corporation" are less than $4,103,400; (2) the "competitive sales of either corporation" are less than 2% of that company's...