The Franchise Memorandum

Collusion with competitors is the most serious form of antitrust risk. Bid rigging and price fixing, for example, are criminal offenses, and individuals receive prison sentences when they engage in such conduct on behalf of their companies. The problem is that it is difficult to tell where legal collaboration ends and collusion starts. Trade association activity provides one case in point. While generally legal, trade associations can lead to competitors working together too closely and ending up in trouble. Worries also arise when competitors discuss a merger or acquisition: how soon can they start presenting a unified face to customers on central terms such as pricing and who deals with whom? What about bid situations? When a customer wants to use the manufacturer's product but needs multiple bids, what involvement can the manufacturer have in working with various potential bidding dealers, or in submitting a factory-direct bid itself? In addition, when a competitor is also your customer or supplier for certain components or in a particular geographic area, it is tricky to separate the cooperation needed in any buyerseller relationship from the collusion generally forbidden of competitors.

The most common antitrust "collusion" problem for manufacturers arises not at the supplier level itself, but when independent dealers conspire among themselves to rig bids or fix prices, and then the dealers attempt to draw the manufacturer into their illegal arrangement. In this scenario, some dealers may complain about other dealers, and may ask the manufacturer to "police" their anticompetitive agreement. They also may ask the manufacturer to participate directly by agreeing that its company-owned distribution outlets or direct sales activities will be curtailed to facilitate the dealers' arrangement. Vexing issues face the manufacturer who wants to do the right thing legally while seeing to it that its good dealers are profitable and happy.

Our next Distribution Issue of The GPMemorandum will discuss ways for manufacturers and other companies to avoid antitrust liability for collusion, as well as the other risks discussed here and in Issue 196.