On June 3, 2022, Department of Justice Antitrust Division Deputy Assistant General Richard A. Powers reiterated the Division’s intent to bring more cases to trial and touted the Division’s record number of open investigations.¹ This surge in potential litigation is bolstered by increased funding for the Division, which Division leader Assistant Attorney General Jonathan Kanter “intend[s] to put … to good use.”²

These increased resources will surely be used to explore provisions of antitrust law that have generally stayed out of the enforcement spotlight. In a speech in April 2022, AAG Kanter stated: “[W]e are committed to litigating cases using the whole legislative toolbox that Congress has given us to promote competition. One tool that I think we can use more is Section 8 of the Clayton Act. … 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.”³

What does Section 8 provide, how might its boundaries be tested, and what should companies and individuals serving on corporate boards keep in mind?

The Statute

Section 8 of the Clayton Act has been part of the U.S. antitrust enforcement repertoire for over a century. It prohibits a “person” from serving as a director or board-appointed officer of two or more “corporations” if (i) the corporations are “by virtue of their business and location of operation, competitors …;” and (ii) certain monetary thresholds are met.⁴ Section 8 is a preventative tool intended to avert collusion before it occurs.⁵

The principal remedy for a violation of Section 8 is the elimination of the interlock, and relief may include prohibitions of future interlocks.⁶ Section 8 allows for a one-year grace period during which a person can resign from one of the problematic positions, and thus remove the interlock, where the interlock arose over time (such as when a person serves on two boards and one of the companies expands into a market where it competes with the other).⁷

Section 8 has de minimis exceptions, whereby it does not apply if: (1) the competitive sales of either corporation are less than $4,103,400;⁸ (2) the competitive sales of either corporation are less than 2% of that corporation’s total sales; or (3) the competitive sales of each corporation are less than 4% of that corporation’s total sales. “Competitive sales” are defined as the “gross revenues for all products and services sold by one corporation in competition with the other, determined on the basis of annual gross revenues for such products and services in that corporation’s last completed fiscal year.”⁹ Whether these exceptions apply may rest on how the Division analyzes competition, as discussed below.

New Tricks?

Despite the seemingly straightforward purpose of the statute, the language of Section 8 presents a host of unresolved questions of interpretation. The Biden Administration’s antitrust enforcers are almost certain to take hard line positions on these questions in an effort to push the bounds of Section 8 in its enforcement efforts:

• Person: Even the most basic premise of Section 8—that a “person” cannot, in principle, serve on the board of competing corporations—is fraught with uncertainty. Does “person” mean “individual,” such that two separate designees of the same corporation could serve on competing boards without violating the statute? Or does “person” refer to the parent entity that has designated the two individuals, such that the interlock is captured by Section 8? The U.S. antitrust agencies have long favored the latter position,¹⁰ but the question remains unresolved in the courts.¹¹

• Competition: Section 8 captures interlocks between corporations that are in competition with each other, but the definition of what constitutes competition remains a gray area. Some courts rely on the market definition analysis used by the Sherman and Clayton Acts generally, which would consider cross-elasticity of demand and whether the products are interchangeable.¹² Other courts perform a broader analysis and analyze (1) the extent to which the industry and its customers recognize the products as separate or competing; (2) the extent to which production techniques for the products are similar; and (3) the extent to which the products can be said to have distinctive customers.¹³

• Corporations: Section 8 prohibits interlocks between “two corporations.” Does this mean that the same person could serve on the board of competing entities, if at least one of them is an unincorporated entity (such as an LLC)? It appears so. The Supreme Court in BankAmerica Corp. v. United States suggested that Congress deliberately chose statutory language that “selectively regulates interlocks with respect to … different classes of business organizations.”¹⁴ Other antitrust laws in close subject matter proximity to Section 8 also distinguish corporations from unincorporated entities.¹⁵ Nonetheless, an aggressive DOJ or Federal Trade Commission might attempt to use Section 8 to challenge interlocks involving non-corporate entities, such as LLCs.

Takeaways

Companies are well advised to anticipate greater focus on Section 8, both in the context of merger reviews and potentially in independent investigations. As a result, consider:

• Reviewing existing board memberships by company employees for potential Section 8 exposure.
• Revising board appointment policies in view of the increasing Section 8 enforcement signaled by Division leadership.
• Instituting a compliance program for reporting changes to directorate positions across the company.
• Considering the broadest definition of competition or competitive sales when analyzing a potential interlock.
• Consulting counsel in industries that the Division has signaled specific interest (e.g., private equity).¹⁶