DOJ's First Large Scale Crackdown On Potentially Unlawful Interlocking Directorates Led To 7 Board Resignations Across 5 Tech Companies

• Published date: 25 October 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: Shearman & Sterling LLP
• Author: Mr David Higbee, Ben Gris, Jessica Delbaum, Ryan Shores, Djordje Petkoski, Jonathan Cheng, Noni Nelson and Jacob Coate

On Wednesday, October 19, 2022, the Department of Justice Antitrust Division (DOJ) announced that seven directors resigned from their board positions because of DOJ's concerns that holding the positions violated the Clayton Act's prohibition on interlocking directorates.¹ Discussed more fully below, Clayton Act Section 8 generally prohibits a person from sitting on the boards of two competing companies.

Although the interlocking-directorate prohibition has existed since 1914, government challenges to interlocking directorates have been historically rare and largely limited to the merger-review context. Perhaps the most high-profile enforcement action outside the context of a merger review occurred in 2009 when Eric Schmidt-Google's then-CEO-resigned from Apple's board and Arthur Levinson-a member of Apple's board-resigned from Google's board after the Federal Trade Commission (FTC) opened an investigation. Still, the FTC and the DOJ have, in recent years, repeatedly expressed their intent to increase scrutiny. In particular, in April 2022, DOJ Assistant Attorney General Jonathan Kanter stated that DOJ is "ramping up efforts to identify violations across the broader economy" and "will not hesitate to bring Section 8 cases to break up interlocking directorates," including through litigation.²

The recent wave of resignations this month marks the first concrete result from DOJ's stated increased scrutiny. The resigning directors, among them private equity executives, are voluntarily stepping down from board positions at five public technology companies. The interlocks at issue were direct, meaning that the same directors were serving simultaneously on the boards of two competing companies. Indirect interlocks, by contrast, occur when different representatives of the organization are appointed to sit on the boards of competing companies (e.g., representatives of a private-equity firm that is an investor in two competing companies). DOJ has warned that this was merely the "first" in a broader review of "potentially unlawful interlocking directorates."

What is the Prohibition on Interlocking Directorates?

Section 8 of the Clayton Act prohibits (1) a "person" from (2) being a director or board-appointed officer of (3) two or more "corporations" that (4) are engaged in U.S. commerce and (5) that are "competitors" if (6) certain monetary thresholds are met. The main purpose is to "nip in the bud incipient antitrust violations by removing the opportunity or...