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The Franchise Memorandum

Avoiding Collusion With Competitors
Posted in Antitrust

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.

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The information contained in this post is provided to alert you to legal developments and should not be considered legal advice. It is not intended to and does not create an attorney-client relationship. Specific questions about how this information affects your particular situation should be addressed to one of the individuals listed. No representations or warranties are made with respect to this information, including, without limitation, as to its completeness, timeliness, or accuracy, and Lathrop GPM shall not be liable for any decision made in connection with the information. The choice of a lawyer is an important decision and should not be based solely on advertisements.

About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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