Third, the contract, combination or conspiracy must be an “unreasonable” restraint on competition. Experience has revealed that some restraints, such as price fixing, are always unreasonable; other restraints, such as assigning distributors specific marketing territories, are examined on their facts to determine their reasonableness. Promotional and consumer awareness activities, which the Consortia may conduct, are generally analyzed under the rule of reason, unless the activities constitute a pretext for an anti-competitive purpose.

As noted above, certain acts are always viewed as unreasonable and in violation of Section 1 of the Sherman Act regardless of their effect on competition. These are called “per se” offenses and include activities such as: price fixing with competitors; division or allotment of sales or customers with competitors; division of territories with competitors; agreements with competitors to limit production; and group boycotts (agreements with competitors not to buy from or sell to other companies). Individuals can be imprisoned for ten years or fined up to $1,000,000, or both, and corporations can be fined up to $100,000,000, for per se offenses.

Monopolization

Section 2 of the Sherman Act states:

“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.”

Section 2 does not prohibit a company from being large or having a dominant position in a market. What is prohibited, rather, is the possession of monopoly power together with the willful acquisition or maintenance of such power through anticompetitive, predatory or exclusionary conduct. Even where the power of a firm in a particular market falls short of monopoly, predatory or anticompetitive conduct there may exist an unlawful attempt to monopolize if there is a specific intent to monopolize together with a dangerous probability of achieving monopoly power. Conspiracy to monopolize requires the existence of a combination or conspiracy, an overt act in furtherance of that conspiracy, and a specific intent to monopolize. For example, the exercise of power to control the prices in or to foreclose access to a market. Markets are defined in terms of both product markets and geographic markets. Both types of markets may be narrowly drawn to apply to only specific product lines or to relatively small geographic territories.

SECTION 2. THE CLAYTON ACT

The Clayton Act is a much more detailed and specific statute than the Sherman Act. For the most part, the Clayton Act’s prohibitions, such as those against certain mergers and inter- locking directorates, do not apply to organizations such as Consortia. The Clayton Act does, however, contain general prohibitions against a company’s conditioning the sale of a commodity upon the buyer’s agreement: (i) to accept another item sold by the seller (to “tie” the sale of one product to the sale of another); or (ii) not to buy products from competitors of the seller. Such arrangements can also be challenged under the Sherman Act.

SECTION 3. THE FEDERAL TRADE COMMISSION ACT

The Federal Trade Commission Act (“FTCA”) is a broadly worded statute that prohibits “unfair or deceptive” trade practices. The FTCA supplements court enforcement of the antitrust laws through a Commission staffed by experts experienced in the field of trade regulation.

The FTCA gives the Federal Trade Commission and the courts power to deal with most forms of trade restraints that are prohibited by the Sherman Act. For example, price fixing is covered by the FTCA. The FTCA goes even further, however, and permits the Commission to proceed against conduct that might develop into a violation of the Sherman Act.

2. ENFORCEMENT OF THE U.S. ANTITRUST LAWS

The U.S. federal government can proceed against suspected antitrust violations through criminal suits, civil actions or administrative proceedings. The two U.S. agencies principally responsible for the enforcement of the U.S. federal antitrust laws are the U.S. Department of Justice Antitrust Division (referred to in these Guidelines as the “Antitrust Division”) and the

U.S. Federal Trade Commission (the “FTC”). Most states have antitrust agencies or divisions of their Offices of Attorneys General dedicated to the enforcement of state antitrust laws.

Individuals may be sentenced to prison for up to ten years and fined up to $1,000,000, and corporations may be fined up to $100,000,000 for criminal violations of the Sherman Act. In the case of hard-core antitrust violations such as price fixing, the Antitrust Division regularly obtains prison sentences for individuals and large corporate fines.

Civil actions may also be brought by the Antitrust Division and administrative proceedings by the FTC, depending upon the specific statutes and conduct involved.

Private persons are also permitted to sue alleged antitrust violators for treble damages, injunctions and their attorneys’ fees. Huge recoveries in treble damage actions have been obtained in many cases. Further, the magnitude of the potential liability which trebling provides, and the expense of defending against such claims, frequently forces defendants, even when they believe their conduct was entirely lawful, to settle cases without the risk of going to trial.

U.S. ANTITRUST GUIDELINES RELEVANT TO THE POTENTIAL ACTIVITIES OF THE CONSORTIA

SECTION 1. FTC and Department of Justice Antitrust Guidelines for Collaboration among Competitors

In April 2000, the FTC and the Antitrust Division issued Antitrust Guidelines for Collaborations Among Competitors (the “Antitrust Guidelines”). It is the Consortia’s policy to follow the Guidelines to the fullest extent applicable. The Consortia encourages all Consortia Participants to become familiar with the Antitrust Guidelines, which are available on the FTC’s and the Antitrust Division’s internet sites. See www.ftc.gov or www.doj.gov/atr/index.html.

Specifically, the Antitrust Guidelines note their applicability to the activities of organizations stating that information sharing, and various trade association activities also may take place

through competitor collaborations.” The Antitrust Guidelines make clear that, except for certain hard-core activities such as price fixing, most competitor collaborations will be analyzed under the so-called “rule of reason.” As the Antitrust Guidelines explain, under the rule of reason, the “central question is whether the relevant agreement likely harms competition by increasing the ability or incentive profitably to raise price above or reduce output, quality, service, or innovation below what likely would prevail in the absence of the relevant agreement.” The Antitrust Guidelines also stress that “rule of reason analysis entails a flexible inquiry and varies in focus and detail depending on the nature of the agreement and market circumstances.”

The Antitrust Guidelines also discuss the risk of information sharing posed by competitor collaborations, and note that, in considering whether a competitor collaboration will be regarded as legal under the rule of reason, the FTC and Antitrust Division:

“. . . evaluate the extent to which competitively sensitive information concerning markets affected by the collaboration likely would be disclosed. This likelihood depends on, among other things, the nature of the collaboration, its organization and governance, and safeguards implemented to prevent or minimize such disclosure. For example, participants might refrain from assigning marketing personnel to an R&D collaboration, or, in a marketing collaboration, participants might limit access to competitively sensitive information regarding their respective operations to only certain individuals or to an independent third party....In general, it is less likely that the collaboration will facilitate collusion on competitively sensitive variables if appropriate safeguards governing information sharing are in place.”

As discussed in greater detail below, it is the Consortia’s policy that exchanges of information in connection with Consortia activities be limited to information necessary to accomplish the lawful, pro-competitive purposes of the Consortia. To ensure compliance, wherever practicable, Consortia and Consortia Participants should implement safeguards such as those described in the Antitrust Guidelines to ensure that competitively sensitive information is not disclosed between members.

SECTION 2. GUIDELINES CONCERNING JOINT & JOINTLY SPONSORED RESEARCH ACTIVITIES

Department of Justice Antitrust Guide Concerning Research Joint Ventures

The Antitrust Division of the Department of Justice has published an “Antitrust Guide Concerning Research Joint Ventures” (the “Guide”). It is the Consortia’s policy to adhere to the Guide to the fullest extent applicable. In general, the Guide makes it clear that a properly structured joint research organization is legal under the antitrust laws. The Guide also states that joint research efforts conducted in accordance with the following principles are normally legal:

1. “Reasonable ancillary restraints” may be imposed which are necessary to the principal lawful purpose of the joint research, e.g., a commitment of a certain amount of a company’s research resources or manpower;”
2. “Results of related research undertaken previously by the participating companies may be exchanged;”

3. “Independently gathered technical information directly relevant to the success of the project, even if developed during the time of the joint research, may also be exchanged;” and
4. “Different aspects of the joint research may be divided among the participants.”

The Guide states that to the extent that antitrust issues arise in the joint research field, those issues most often occur because:

“joint research may involve or create market-dominating technology, may be conducted by competitors or potential competitors, or may involve restrictive agreements concerning the use of the research.”

Types of joint research activities that are likely to be viewed as illegal by the Antitrust Division include the following:

• • Restrictions on individual companies’ research.
• • Unnecessary restrictions on production and marketing of inventions resulting from the joint research.
• • The exchange of confidential information, such as information relating to cost of productions or other similar matters, that is not necessary to the joint research endeavor.
• • Agreements that are in fact designed to thwart research rather than to promote it.
• • Any agreement to limit the introduction of new products or to discontinue old products that compete with products of joint research.
• • Any agreement to pool patents not reasonably necessary to the operation of the joint venture.
• • An overall pattern of restrictive agreements that has anti-competitive purposes or effects.

To the extent that the Guide applies to the Consortia, Consortia and Consortia Participants should place no restraints on either the research activities conducted by Consortia Participants or the uses to which the results of the Consortia’s research are put.

National Co-operative Research and Production Act

To encourage joint research, Congress enacted the National Cooperative Research Act of 1984 (“NCRA”). In connection with the passage of that statute, the Antitrust Division released a statement about the NCRA in which it noted that:

“cooperative research and development efforts may improve productivity, bring better products to consumers sooner and at lower cost, and enable American business and industry to keep pace with foreign competitors in a world increasingly dependent on technological innovation.”

The NCRA was amended by the National Cooperative Research and Production Act of 1993 (“NCRPA”) that extends the coverage of the NCRA to production, as well as research and development joint ventures. (The NCRA, as amended by the NCRPA, is referred to hereafter as the “NCRPA.”). The NCRPA provides limited protection from antitrust civil suits for joint research ventures that submit proper notification of the venture to the U.S. Attorney General and the FTC. Where such notification is properly filed, treble damages may not be awarded against the venture, and attorneys’ fees and costs may be awarded to participants in the venture that successfully defend any antitrust suits, if it is shown that the plaintiff’s conduct during the litigation of the claim was “frivolous, unreasonable, without foundation, or in bad faith.”

To the extent that the NCRA applies to Consortia’s activities, the pro-competitive conduct encouraged by the NCRA should inform Consortia’s activities.

1. APPLICABILITY OF THE U.S. ANTITRUST RULES TO POTENTIAL AREAS OF ACTIVITY OF THE SAE ITC

SECTION 1. MARKETING AND PROMOTIONAL ACTIVITIES

Trade shows and other marketing and promotional events may generally be sponsored and organized by groups such as the Consortia. As discussed below, the Consortia will consider carefully whether excluding competitors from such events is lawful under the specific circumstances of a given event. Generally, providing access to such events to non-members is not required unless the nature of the event or the structure of the industry makes participation reasonably necessary to compete in the industry. Where non-members participate in such events, the Consortia will not discriminate between members and non- members (with the sole exception of possibly charging non-members a reasonable fee, or a reasonably increased fee, to defray the costs of the event).

The FTC and the Antitrust Division regard trade shows and similar events as dangerous opportunities for competitors to exchange competitively sensitive information such as information regarding prices, costs, customers and marketing plans and practices. Such exchanges of information can result in price-fixing agreements or other unlawful collusion that can be prosecuted criminally, as discussed above. Consortia Participants should carefully avoid the discussion of pricing or other considerations of sale at any trade shows or similar events sponsored by the Consortia.

SECTION 2. CERTIFICATION

The Consortia may certify products of its Members as being Consortia Compliant (“Certification”). The Consortia may develop, implement and enforce policies and procedures regarding the granting or denial of Certification. To ensure that the Certification process is in compliance with antitrust laws, such policies and procedures will be neutral, fair, reasonable, and, whenever practicable, based on objective criteria.

The Consortia may register Certification language and related logos as registered service marks. The Consortia may develop, implement and enforce policies and procedures regarding the permissible uses of the marks and permissible references to the Certification. Such policies and procedures will be enforced in a non-discriminatory manner.

SECTION 3. MEMBERSHIP CRITERIA, POLICIES AND PROCEDURES

Exclusion from membership in joint organizations can, under certain circumstances, result in an antitrust violation. Such exclusions can even be considered per se violations when under- taken with an anti-competitive purpose or effect. Generally, however, ordinary limitation of membership in joint organizations will be reviewed under the rule of reason, unless the organization possesses market power or exclusive access to an element essential to effective competition. The Consortia will comply with all applicable antitrust laws in the development and implementation of its membership criteria, policies and procedures.

The Consortia may develop written membership criteria. Such criteria will be written and administered in compliance with the relevant antitrust laws. The Consortia may develop written policies and procedures regarding application for membership, including standard forms for consideration of membership. Such policies and procedures will be written and administered in compliance with the relevant antitrust laws.

The Consortia may develop written policies and procedures regarding suspension or expulsion from membership, or prohibition of members or certain of their employees or agents from participating in some or all Consortia activities. These policies will also be written and administered in compliance with the relevant antitrust laws.

SECTION 4. INFORMATION-SHARING

In connection with joint research, specification development, promotional activities and other activities, it will be necessary and appropriate for Consortia and its Members to share certain information. All Consortia Participants must ensure that such sharing of information is limited to the information necessary for Consortia’s purposes.

EU ANTITRUST LAW

1. OVERVIEW OF THE EU ANTITRUST LAWS

The principal provisions of the EU competition laws that are relevant to the activities of the Consortia are Articles 81 and 82 of the EC Treaty. The scope and nature of each of these provisions is summarized briefly below.

SECTION 1. ARTICLE 81 EC TREATY

Article 81(1) EC Treaty prohibits:

“all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market”

Article 81(1) applies to agreements satisfying the following criteria:

First, there must be an agreement, decision or concerted practice. Article 81(1) applies not only to formal written agreements, but also to oral understandings, ‘gentlemen’s agreements’ and informal cooperation. Parallel conduct not accompanied by any agreement or tacit understanding is not covered by Article 81.

Second, there must be two or more undertakings. Purely intra-company agreements, e.g., between parents and subsidiaries or affiliates in the same economic group, are not covered.

Third, the agreement, decision or concerted practice must affect trade between Member States. However, conduct in only one Member State or imports and exports between Member States and third countries may also infringe Article 81(1) if they have appreciable effects on trade between Member States (see below).

Fourth, the agreement, decision or concerted practice must have as its object or effect the prevention, restriction or distortion of competition in the common market. Where the agreement’s purpose is to restrict competition, the Commission need not show that it has adversely affected on competition. If the agreement does not aim to restrict competition, but may have some restrictive effects, the agreement’s compatibility with the common market will be judged in light of its effect on actual and potential competition.

Types of conduct prohibited under Article 81(1) include the following:

• • Price Fixing. Price fixing is prohibited not only with direct competitors, but also with distributors or retailers.
• • Limitation of Production, Markets, Technical Development and Investment. This applies to direct or indirect attempts at market sharing and price control by ensuring the maintenance of a status quo or regulating any move away from it.
• • Market and Customer Allocation. It is generally illegal to agree with another undertaking not to sell or buy from any particular supplier / customer in a particular group or class. Sharing along national lines (e.g., “We will not sell to German consumers if you do not sell in the United Kingdom”) is considered to be a particularly serious offence.
• • Discrimination. It is illegal to discriminate against certain customers by blacklisting or agreeing to give special terms to particular categories of customers. Article 81 does not, however, prevent supplies to different customers at different prices if these are the result of normal arms’ length negotiations (e.g., quantity or prompt payment discounts).
• • Tying. Article 81 prohibits the making of the conclusion of certain contracts subject to supplementary obligations that have no connection with the principle contract. A simple test for applying this principle is that if the products can sensibly be sold separately, then the respective contracts should not be tied together.
• • Exchanging Information. Undertakings may not exchange information, directly or indirectly, with their competitors in respect of their prices, price changes, discounts, rebates, price calculations, costs, production, production planning, areas of sale or promotional activity, exchange of customer database, transport charges, terms of sale (including warranties), the adoption of new technology, research and development, new products or launch dates for new products. The competition rules may apply even to the exchange of published information and in some cases even to information concerning the past.

Article 81(2) declares that any provisions of an agreement which infringes Article 81(1) are automatically void and therefore unenforceable. Moreover, depending on the severability of the infringing provisions, the entire agreement may in fact be void.

SECTION 2. ARTICLE 82 EC TREATY

Article 82 provides that:

“Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States”.

Article 82 applies if the following conditions are satisfied:

First, the undertaking(s) involved must have a dominant position on particular product and geographic market(s). In determining whether a dominant position exists, the Commission will consider a number of factors, including the market share of the undertaking(s) and it competitors, its customers’ market power and other relevant characteristics of the market. A market share of 40% or greater gives rise to a presumption of dominance, although an undertaking may, in certain circumstances, be dominant with a market share as low as 25%.

Second, there must be an abuse of the dominant position. Simply acquiring or maintaining a dominant position does not violate Article 82. Conduct by a dominant undertaking that may be considered to constitute an abuse within the meaning of Article 82 includes:

• • Long-Term Supply Contracts. Long-term supply contracts for a large proportion of a customer’s needs may infringe Article 82 if they are far too long a duration. The answer to what is too long will depend on the nature of the product concerned and the proportion of the customer’s needs which are satisfied under the contract. A contract that is automatically renewable does not infringe Article 82 provided that the minimum period before which the parties can next terminate by reasonable notice is not too long.
• • Fidelity and Loyalty Rebates. While rebates or discounts which are linked to the quantities of the product sold or other factors reflecting cost savings are legal, rebates or discounts which are linked to a particular customer’s requirements may infringe Article 82 since they constitute a form of price discrimination.
• • Meet or Release Clauses. Clauses which provide that a customer may purchase its products from an alternative third party source, subject to the provision that the dominant supplier has an opportunity to match the third party’s offer, may be considered unfair since such clauses allow the dominant supplier to reinforce its position as the customer is forced to disclose the third party’s offer to the dominant supplier, allowing the dominant supplier to match the offer and retain the business.
• • Discriminatory Prices. Discriminatory prices as between different customers which do not reflect some objective cost savings are unfair, particularly if the discrimination is geographical and reflects a national division of the EEA.
• • Tying Clauses. Tying sales of products together (see Article 81(1) discussion above).
• • Refusal to Supply. As a general rule, a dominant undertaking cannot refuse to supply without an objectively justifiable reason and it cannot stop supplying a long-standing customer that abides by regular commercial practice. This does not mean that where products are in short supply, everyone must be treated the same, but there must be objective reasons for making a particular decision.

SECTION 3. EXEMPTIONS FOR INFRINGEMENTS OF ARTICLE 81(1)

As noted above, provisions of an agreement that infringe Article 81(1) are void and unenforceable (Article 81(2)). However, a provision which falls within the scope of Article 81(1) is permissible if it qualifies for an exemption under Article 81(3). No exemptions are available for infringements of Article 82.

Article 81(3) provides that an agreement that falls within the scope of Article 81(1) qualifies for an exemption if it:

• • results in an improvement to the production or distribution of good and promotes economic or technical progress;
• • Provides consumers with a fair share of the economic benefits;
• • Only contains restrictions that are indispensable to the achievement of the economic benefits that are the objectives of the agreement; and
• • Does not eliminate competition in respect of a substantial part of the products concerned.

An agreement may benefit from an Article 81(3) exemption either on individual notification to the Commission or by falling within the scope of one of the Block Exemption Regulations that have been adopted by the Commission.

SECTION 4. EXTRATERRITORIAL SCOPE OF ARTICLES 81 & 82

Agreements concluded outside the European Economic Area (“EEA”)¹ may, nonetheless, be covered by EC competition rules if they affect trade between EEA Member States. For example, the following activities outside the EEA would violate applicable EU competition laws:

• • A sales joint venture between a Japanese and U.S. company dividing up the worldwide market and, thereby, excluding the Japanese company from selling its products in the EEA;
• • An export ban in a distribution agreement concluded in the U.S. which prevents passive sales into the EEA; and,
• • A price fixing agreement concluded between Japanese companies in Japan relating to the selling prices of their subsidiaries in the EEA.

SECTION 5. ENFORCEMENT OF ARTICLES 81 & 82

Both the European Commission and national competition authorities are competent to enforce Articles 81 and 82.

Agreements that infringe Article 81(1) are void and unenforceable unless they qualify for an exemption under Article 81(3). Moreover, the Commission has the power to impose the following sanctions for violations of Article 81 and Article 82:

• • Fines of up to 10% of an infringing firm’s group turnover in the preceding financial year;
• • Orders requiring an undertaking to terminate infringements; and
• • Interim measures.

Furthermore, private parties may bring a cause of action for damages or injunctive relief relating to alleged infringements of the EU competition rules, although issues relating to standing, procedure and the amount of damages are governed by national law.

2. APPLICABILITY OF ARTICLES 81 & 82 TO POTENTIAL AREAS OF ACTIVITY OF SAE ITC

The purpose of this section is to summarize the applicability of Articles 81 and 82 to certain areas of activity that are likely to be relevant to the Consortia in the light of the relevant Block Exemption Regulations, as well as the Commission’s Guidelines on the applicability of Article 81 to horizontal cooperation agreements (“Article 81 Guidelines”). The practical implications arising from the issues discussed in this section, and in Chapter 1, are summarized in Chapter 3 of these Guidelines.

1. 5. DO NOT undertake any activity invoicing collection of cost data from individual Members or dissemination of any compilation of such data without prior approval of Consortias legal counsel.
   6. DO NOT set a numerical limit on committee size unless participation in the committee is rotated on a regular and reasonable basis. You may set a numerical limit on the maximum number of representatives per Member.